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

FRASERS HOSPITALITY TRUST SGX:ACV

Frasers Hospitality Trust - Building A Global Roster

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%).

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.

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 ~SGinvestors.io ~ Where SG investors share

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 ~SGinvestors.io ~ Where SG investors share

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 ~SGinvestors.io ~ Where SG investors share

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