Frasers Hospitality Trust - Maybank Kim Eng 2018-09-14: Building A Global Roster

FRASERS HOSPITALITY TRUST (SGX:ACV) | SGinvestors.io FRASERS HOSPITALITY TRUST SGX:ACV

Frasers Hospitality Trust - Building A Global Roster


Growth ambitions, undemanding valuations

  • Frasers Hospitality Trust (FHT) has executed well to increase AUM and broaden its markets with new deals since its 2014 IPO. It now boasts a portfolio of nine hotels and six serviced residences in global gateway cities.
  • Near term, we see stronger 3-5% RevPAR growth for its hotels in Singapore and Europe, underpinned by momentum in leisure tourism and stronger corporate demand.
  • Valuations, backed by its growing portfolio of quality assets, are compelling vs peers at 7% DPU yields and 0.8x P/BV. Strong sponsorship coupled with low 34.0% gearing provides growth visibility and upside to our DPU.
  • We initiate coverage with BUY and a DDM-based SGD0.80 Target Price (COE 7.9%, LTG 2.0%).



Acquisition-led growth

  • Three acquisitions completed in the three years since its Jul 2014 IPO have increased FHT’s exposure to Australia and Europe. AUM from its overseas assets rose from 57% to 66% as of end-Jun 2018.

~ SGinvestors.io ~ Where SG investors share
  • Overseas NPI is expected to rise from 74% in FY16 to 77% in FY20E. We see stronger fundamentals in Europe, from manageable supply and firm demand. The market also offers positive carry from low EUR-funding costs, which will continue to support FHT’s efforts in pushing for accretive deals.


Weak June quarter; set for better comparables

  • Revenue and NPI fell 1.8% y-o-y and 2.8% respectively during the Jun 2018 quarter amid weakness in Australia and Malaysia. 
  • In Singapore, its Intercontinental hotel’s occupancy and RevPAR improved, following the completion of AEI in 2016. This helped to offset a weaker performance by Fraser Suites. However, we expect better demand in 2H18, plus stronger RevPARs in Singapore, Sydney, Japan and Germany. ~SGinvestors.io ~ Where SG investors share


Strong balance sheet, visible sponsor pipeline

  • Balance sheet was strengthened by a SGD266.3m 32-for-100 rights issuance in 2016. Gearing was 34.0% as of end-Jun 2018. We believe FHT is well-positioned for further acquisition growth, which could lift our DPU estimates.
  • Sponsor’s pipeline properties, excluding those owned by strategic shareholder TCC, already imply a SGD2.2b book value.
  • ~SGinvestors.io ~ Where SG investors share


Swing Factors 


Upside 

  • Earlier-than-expected pick-up in corporate demand. 
  • Better-than-anticipated RevPAR. 
  • Accretive acquisitions where cap rates exceed cost of funds, or divestments at low cap rates which unlock asset values. 
  • ~SGinvestors.io ~ Where SG investors share

Downside 

  • Sizeable increases in hotel and SR room supply without commensurate growth in demand. 
  • Deterioration in global economy, resulting in declines in RevPARs. 
  • Significant volatility in FX rates could impede hedging efforts and affect DPU. 
  • Sharper-than-expected rise in interest rates could increase cost of debt and hit earnings, with higher cost of capital lowering valuations. 


See also the SREIT Hospitality Sector Initiation Report : Singapore REITs - Checking In.




Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2018-09-14
SGX Stock Analyst Report BUY Initiate BUY 0.80 Same 0.80



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