FRASERS HOSPITALITY TRUST (SGX:ACV)
Frasers Hospitality Trust - Value Play, DPU Upside
SG RevPAR improvement offsets Australian weakness
- We hosted an NDR for FRASERS HOSPITALITY TRUST (SGX:ACV) in Singapore following its 4QFY19 results; its 3Q19 DPU of SGD1.17cts was -4.1% y-o-y, primarily due to a weaker performance in Australia. See Frasers Hospitality Trust Announcements; Frasers Hospitality Trust Dividend History.
- Key NDR highlights include:
- positive drivers for its Singapore RevPAR recovery;
- growth outlook for its diversified overseas portfolio; and
- acquisition growth opportunities.
- Our DDM-based Target Price is unchanged after rolling forward at SGD0.80 (COE: 7.6%, LTG: 2.0%). See Frasers Hospitality Trust Share Price; Frasers Hospitality Trust Target Price.
- BUY on undemanding valuations – FY19E P/BV at 0.9x is lowest amongst its peers, with re-rating potential on acquisitions, backed by a strong balance sheet and its sponsor’s growing AUM.
Singapore recovery intact
- Frasers Hospitality Trust's Singapore assets witnessed a turnaround in 4Q19 with GOR/GOP at +5.1%/11.1% y-o-y, versus -0.4%/+3.8% y-o-y in 3Q19. This was helped by better occupancies (up y-o-y from 90.3% to 92.5%) and a 4.9% y-o-y jump in RevPAR, with stronger leisure and corporate demand from the transient segment.
- We believe that competitive supply pressures in the Bugis micro-market have subsided, and pencil in a 3-5% RevPAR improvement over FY20-21, to be further strengthened by easing supply.
Australia likely a drag, on supply pressures
- Frasers Hospitality Trust's Australian portfolio’s contribution has contracted y-o-y, from 42.0% of its overall revenue and 36.0% of NPI to 38.0% and 31.0% respectively. RevPAR declined 3.1% y-o-y on the back of lower ADRs and occupancy (from 87.5% to 86.2%).
- Management is now prioritising to increase yields on its assets, ahead of divestment opportunities.
- We have factored in a 5% y-o-y RevPAR decline in FY20-21 against supply headwinds, as upcoming new room supply is set to rise 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 recovering GOP in Japan.
Acquisition-growth outlook elusive
- Its balance sheet remains strong at 35.1% leverage with average cost of debt at 2.5%. Refinancing efforts have pushed debt maturity from 2.91 to 4.63 years as of end-Sep 2019.
- Frasers Hospitality Trust is eyeing expansion opportunities from both its sponsor’s ROFR assets and third-party deals, with Europe (Germany, Amsterdam) offering better growth fundamentals.
Chua Su Tye
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2019-10-31
SGX Stock
Analyst Report
0.800
SAME
0.800
