Frasers Hospitality Trust - Maybank Kim Eng 2019-05-03: Supportive Valuations


Frasers Hospitality Trust - Supportive Valuations

Slow quarter, dragged by currency headwinds

  • FRASERS HOSPITALITY TRUST (SGX:ACV)’s 2Q19 DPU was in line with both MKE and consensus estimates; DPU fell 11.5% y-o-y on a weaker performance at its portfolios in Australia, Malaysia and Japan. This was exacerbated by depreciation in their respective currencies, which contributed to a 53%/40% decline in their gross revenues/NPIs.
  • Our forecasts are unchanged and our DDM-based Target Price stays at SGD0.85 (COE: 7.4%, LTG: 2.0%). We reiterate BUY with the shares undervalued vs. historical mean and peers at 0.8x FY19E P/B.
  • For now, a re-rating could be led from a potential portfolio reshuffle, given tight cap rates for Sofitel Wentworth Sydney and positive yield-spreads in Europe, supported by its low 34.1% gearing and sponsor’s growing AUM.

S’pore stable amid micro-market supply pressures

  • Frasers Hospitality Trust's Singapore operations were stable in 2Q19 with GOR/GOP at +0.9%/- 0.7% y-o-y. RevPAR rose 2.2% y-o-y to SGD253 on stronger occupancies, up from 84.3% to 88.7% mainly at its Fraser Suites serviced residence units.
  • Competitive pressures from new supply in the Bugis micro-market (Andaz and JW Marriott) coupled with the reopening of 329 rooms at the Swissotel post its AEI has pushed down RevPARs at Intercontinental Hotel by more than 4% y-o-y, according to management. We see a muted near-term RevPAR growth outlook as new supply gets absorbed.

Australia weak – Sydney remains difficult

  • The Australian portfolio, at 47.0% of its gross revenue and 40.0% of NPI, saw GOR/ NPI fall 4.0%/ 6.1% y-o-y. RevPARs declined 5.4% y-o-y on the back of lower ADRs and occupancy.
  • We believe that Sydney’s trading backdrop remains challenging against new room supply, at 5.7% y-o-y p.a. over the next 3 years and ahead of an estimated 4.0% y-o-y in tourist arrivals.

Catalyst from capital-recycling opportunities

  • Supply-side headwinds in Australia should prompt management to recycle its assets (a third of its AUM) into Europe with stronger growth fundamentals, as they target expansion opportunities from both sponsor’s ROFR assets and third-party deals.
  • A successful transaction at a 4.0-4.5% cap rate for the Sofitel Wentworth Sydney could result in a SGD110-150m gain, based on our estimates to fund other deals.

Chua Su Tye Maybank Kim Eng Research | 2019-05-03
SGX Stock Analyst Report BUY MAINTAIN BUY 0.850 SAME 0.850