Frasers Hospitality Trust - DBS Research 2020-05-12: Crossing One Hurdle At A Time

FRASERS HOSPITALITY TRUST (SGX:ACV)

Frasers Hospitality Trust - Crossing One Hurdle At A Time

S$25m, or 80% of 1H20 distributable income, retained.
RevPAR declined 21.3 - 35.1% y-o-y for the quarter across Frasers Hospitality Trust’s markets.
Sponsor-backed master leases provide S$56m in fixed rents per annum.
Frasers Hospitality Trust currently trades at 0.68x P/NAV, beyond -2 standard deviation levels (0.77x).

Frasers Hospitality Trust (SGX:ACV) reported gross revenue and NPI of S$20.2m (- 41.5% y-o-y) and S$12.1m (-52.0% y-o-y) for the latest quarter respectively.
While the REIT will be maintaining distribution payout ratio of above 90% for the financial year, a decision was made to retain 80% of distributable income for 1H20, to be conservative.
S$25.3m will be retained from 1H20 distributions in anticipation of weak operating performance and to support Novotel Melbourne on Collins which is not under master lease protection.
Correspondingly, distribution after retention declined 85.3% y-o-y to 0.3287 Scts for 1H20 (or a decline of 26.6% y-o-y to 1.6438 Scts prior to the retention).

Frasers Hospitality Trust's RevPAR declined 21.3-35.1% y-o-y for the quarter across markets.
Portfolio occupancy ranged between 26% and 45% for March as COVID-19 cases surged in Frasers Hospitality Trust’s markets and lockdown measures were progressively put in place. These included the temporary closure of Frasers Hospitality Trust’s UK hotels from 27 Mar and all F&B outlets in the Australian hotels since 23 Mar.
Four of Frasers Hospitality Trust’s 15 assets are currently under the government’s block booking to house returning residents who are serving quarantine notice. These include InterContinental Singapore, Novotel Melbourne on Collins, Sofitel Sydney Wentworth and Fraser Suites Sydney.
Going into 3Q20, Frasers Hospitality Trust will be looking to periodically reopen the UK hotels and temporarily close Westin KL for two months as the asset now operates below breakeven levels (26% occupancy in March).

We highlight that Frasers Hospitality Trust’s fixed rents round up to S$50m per annum across 13 sponsor master leases, which are currently paid in a timely fashion with rental deposits in place.
Frasers Hospitality Trust also has corporate guarantees on the third-party master lease for Maritim Dresden hotel.
Portfolio performance will likely trend downwards in the coming quarter, but the return of domestic travel will remain a positive catalyst for Frasers Hospitality Trust’s foreign markets as lockdown measures start to see progressive easing.

As at 31 March, Frasers Hospitality Trust’s gearing stood at a comfortable 36.0%, with a flat cost of borrowing at 2.4% per annum.
Debt maturity had been significantly extended to 4.14 years, from 2.4 years in 2Q19. No outstanding loans will be due for renewal in FY20 and FY21.
A myriad of cost containment measures had been executed on the portfolio and individual property level, including the suspension of S$5.6m of non-essential capex.
Further steps of making a pre-emptive drawdown of S$30m in RCF had also been taken for further capital fluidity.
See Frasers Hospitality Trust Share Price; Frasers Hospitality Trust Target Price; Frasers Hospitality Trust Analyst Reports; Frasers Hospitality Trust Dividend History; Frasers Hospitality Trust Announcements; Frasers Hospitality Trust Latest News.
We currently have a BUY call on Frasers Hospitality Trust, with a target price of S$0.65, pegged to historical mean price-to-book of 0.9x.

Derek TAN DBS Group Research | Singapore Research Team DBS Research | https://www.dbsvickers.com/ 2020-05-12

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