FRASERS HOSPITALITY TRUST (SGX:ACV)
Frasers Hospitality Trust - A Long Wait; Downgrade To HOLD
Worsening demand outlook; Prefer Ascott Residence Trust
- We downgrade Frasers Hospitality Trust (SGX:ACV) to HOLD with a lower Target Price of SGD0.45 (COE: 9.7%, LTG: 2.0%) to reflect its 3Q20 DPU miss and weak outlook. Demand visibility in FY20-21 remains low due to the pandemic, and another lockdown would dash any hopes of a recovery.
- Frasers Hospitality Trust's balance sheet remains sound (35.9% leverage), but we see limited deal catalysts. Valuations at 0.6x P/B should offer downside support.
- Near-term sector fundamentals are weak, and we prefer Ascott Residence Trust (SGX:HMN) (BUY, Target Price SGD1.05, see report: Ascott Residence Trust - Maybank Kim Eng 2020-07-28: Longing For Long-stays) for its diversified portfolio, assets that are focused on long stays, and upside from capital distributions amid slower DPU growth.
Frasers Hospitality Trust's 3Q DPU missed, low demand visibility for Singapore
- We cut Frasers Hospitality Trust's DPUs by 25-31% following its weaker-than-expected 3Q20, caused by lower occupancies and RevPARs plunging 55-89% y-o-y across its portfolio. Its Singapore occupancy fell only slightly y-o-y from 85.3% to 80.2% in 3Q20, as the impact of border closures since 16 Mar was cushioned by demand for isolation purposes at Intercontinental. However, RevPAR fell 55.2% y-o-y to SGD108 as ADRs declined sharply by 53.4% y-o-y to SGD132. Meanwhile, earlier demand growth for long-stays at Frasers Suites has eased off, with its occupancy at 53.7%.
- Despite the easing of some control measures since mid-June 2020, we see limited visibility into FY21 due to the uncertainties from the pandemic. And if there’s another wave of the outbreak, lockdowns could be reintroduced, dashing all hopes of a recovery in the short to medium term.
Overseas revenues hit by lockdowns
- Frasers Hospitality Trust's Australian portfolio weakened further in 3Q20, as shut borders and absence of international visitors pushed occupancy down y-o-y from 86.7% to 32.6%, and RevPAR plummeted 75.5% y-o-y to AUD46. Victoria’s 6-week lockdown (from 2 Aug) has likely dampened recovery prospects too. Maritim’s operations have suffered from Germany’s lockdown, and with a moratorium on rents due to COVID-19, its 3Q20 rental income has been deferred by 24 months (with 8.0% pa interest charges on the arrears).
No near-term refinancing risk
- Frasers Hospitality Trust's balance sheet remains strong at 35.9% leverage with average cost of debt down to 2.3% (from 2.4%) and debt maturity extended to 3.88 years as of end-Jun 2020 with no borrowings due till FY22.
- 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.
Chua Su Tye
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2020-08-09
SGX Stock
Analyst Report
0.45
DOWN
0.650
