Frasers Hospitality Trust - Maybank Kim Eng 2020-11-02: Easing Out To Growth?

FRASERS HOSPITALITY TRUST (SGX:ACV)

Frasers Hospitality Trust - Easing Out To Growth?

Frasers Hospitality Trust (SGX:ACV)’s 4Q20 was weak as RevPAR across its portfolio fell 59-81% y-o-y, with occupancies lower than peers at 32-53%. FY20 DPU of S$1.4cts (-68.3% y-o-y) would have missed consensus and our estimates by a 20-30% margin.
Demand visibility is low and we cut forecasts for Frasers Hospitality Trust by 12-15%, but expect DPU recovery in FY21, with REvPAR improvements in Australia and Singapore.
Frasers Hospitality Trust's balance sheet remains sound (37.7% leverage), but deal catalysts are low. Valuations at 0.6x P/B should offer downside support to our DDM-based S$0.40 Target Price (COE: 7.0%, LTG: 2.0%).

We prefer Ascott Residence Trust (SGX:HMN) (BUY, Target Price S$1.05) for its diversified portfolio, concentrated long-stay assets and upside from capital distributions amid slower growth. See report: Ascott Residence Trust - Maybank Kim Eng 2020-11-01: Long On Long-Stays.

Frasers Hospitality Trust's Singapore portfolio (at 35.5% of AUM), recorded stable occupancy of 79.0% in 4Q20 (from 80.2% in 3Q20), as the expiry of isolation demand at the Intercontinental in Sep was partly mitigated by stronger bookings at Fraser Suites, where occupancy jumped q-o-q from 57.3% to 81.7%, driven by long-stays that contributed 60% of bookings.
Frasers Hospitality Trust's RevPAR fell 59.0% y-o-y but rose 3.8% q-o-q to S$112 on the back of lower ADRs, down 52.2% y-o-y, but up 6.8 q-o-q. We expect staycation demand to gain traction in FY21, to further support recovery in RevPAR.

RevPAR for Frasers Hospitality Trust's Australian portfolio (32.3% of AUM) declined 78.5% y-o-y and 10.9% q-o-q to AUD41 in 4Q20 on the back of lower occupancy, which fell y-o-y by 51.2ppts but rose q-o-q from 32.6% to 35.0%, as Sofitel Sydney and Novotel Melbourne secured additional contracts for isolation stays.
We see improving demand and RevPAR into FY21, underpinned by a gradual recovery in domestic travel and as Melbourne exits from its lockdown.
Frasers Hospitality Trust's UK occupancy was weak at 25.9% as four of its five properties reopened after a government-imposed mandatory closure in 3Q20, but could be further dampened by a second month-long lockdown from 5 Nov.

Frasers Hospitality Trust's AUM declined 3.5% y-o-y to S$2.25b while cap rates were unchanged, as valuers would have modelled in a stronger RevPAR recovery from 2023-24. Its balance sheet is sound with leverage low at 37.7% as of end-Sep 2020 with no borrowings due till Jul 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 | https://www.maybank-ke.com.sg/ 2020-11-02

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