FRASERS HOSPITALITY TRUST (SGX:ACV)
Frasers Hospitality Trust - Value Play, Deal Catalysts
Cut DPUs, valuation undemanding
- We cut FY19/20 DPUs by 6%/8% on weaker than expected 3Q19 results. FRASERS HOSPITALITY TRUST (SGX:ACV)'s DPUs declined by 10.2% y-o-y, primarily due to weaker performance in Australia, exacerbated by unfavourable currency depreciation that contributed to -32% and -20% y-o-y in revenue and NPI.
- While our DDM-based Target Price is lowered to SGD0.80 (COE: 7.2%, LTG: 2.0%), we maintain BUY on undemanding valuations – FY19E P/BV at 0.8x is the lowest amongst its peers.
- A new CEO, and possible deals are catalysts. For now, a re-rating could be led by potential portfolio recalibration, given tight cap rates for Sofitel Wentworth Sydney, positive yield-spreads in Europe, its low 35.0% gearing, and sponsor’s growing AUM.
SG stabilised, pencilling in 2% RevPAR recovery
- Frasers Hospitality Trust's Singapore operations continued to stablise in 3Q19, with GOR/GOP at -0.4%/+3.8%, as RevPAR dipped slightly (-0.5% y-o-y) on lower occupancy (from 86.9% to 85.3%).
- We believe competitive supply pressures in the Bugis micro-market (Andaz, JW Marriott, a reopening of 329 rooms at the Swissotel post its AEI) have mostly subsided, and we pencil in a 2-3% RevPAR improvement over FY20-21, supported by easing supply.
Australia fundamentals weak on supply pressures
- Frasers Hospitality Trust's Australian portfolio has shrunk on gross revenue and NPI contribution - down 47.0% to 38.0%, and from 40.0% to 29.0% respectively, as GOR/ GOP fell 5.4% y-o-y and 14.8% y-o-y. RevPAR declined 5.8% y-o-y on the back of lower ADRs and occupancy (from 89.2% to 86.7%), while margins were hit by higher staff costs across its Sydney properties.
- We now factor in a 5% y-o-y RevPAR decline, as the trading backdrop stays challenging against upcoming new room supply, at +29% from 2018-22 in Sydney, according to CBRE. We see improving RevPAR for its UK properties on stronger demand, helped by a weak currency, and Japan’s recovering GOP.
Divestment opportunities, visible ROFR deal pipeline
- We expect supply-side headwinds in Australia to encourage management to recycle its assets (a third of its AUM) into Europe with better growth fundamentals. Frasers Hospitality Trust remains focused on its expansion opportunities from both its sponsor’s ROFR assets and third-party deals.
- We estimate a successful transaction at a 4.0-4.5% cap rate for the Sofitel Wentworth Sydney could result in a SGD110-150m gain, to fund other deals. We are hopeful of such initiatives with a new CEO.
Chua Su Tye
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2019-07-31
SGX Stock
Analyst Report
0.80
DOWN
0.850
