Frasers Hospitality Trust - DBS Research 2021-05-03: Awaiting Border Reopening

FRASERS HOSPITALITY TRUST (SGX:ACV)

Frasers Hospitality Trust - Awaiting Border Reopening

Frasers Hospitality Trust's 1H21 operational results continue to be weighed down by border closures and lockdowns.
Sequential performance reveals that green shoots are emerging with positive momentum.
More than 55% of portfolio to benefit from resumption of domestic travel.
BUY call for Frasers Hospitality Trust maintained with lower target price of S$0.65.

Frasers Hospitality Trust (SGX:ACV) reported a ~36% and ~41% drop in 1HFY21 revenues and net property income (NPI) to S$39.9m and S$26.7m respectively. Its performance continued to be affected by the COVID-19 pandemic as occupancies remained at sub-optimal levels while there was a partial impact a year ago. This led to a ~73% drop in distributable income to S$8.6m. The manager has retained S$5.2m or 60% of the distributable income to conserve cash which will be paid out in 2H21, once overall operational visibility improves.
After retention, Frasers Hospitality Trust's DPU for 1H21 equates to 0.179 cents, which is ~46% lower y-o-y.
On a sequential basis, we are seeing bright spots with revenues and NPI rising by ~54% and ~84% h-o-h respectively, driven by better performance of its Australian portfolio as interstate travel resumed somewhat.

Frasers Hospitality Trust's gearing remained stable at 37.7% with a weighted debt expiry profile (WADE) of 3.12 years with no refinancing needs in 2021.
Effective 2.2% cost of debt with 74.6% fixed interest rates offers good visibility on the interest cost front.
While interest cover declined to 1.5x, we understand that Frasers Hospitality Trust has not breached any loan covenants.
We estimate gearing to edge up to ~39% on the expected financing of its S$100m perpetuals in 3QFY21 with its debt facilities.

While 1H21 operational performance continued to be weighed down by certain mandatory lockdowns (i.e. hotels in the UK and Germany) and with international borders remaining closed, Frasers Hospitality Trust’s hotels are generally depending on either
1. long-stay business ,
2. staycations (especially in Singapore and Australia), and
3. government quarantine business to fill their rooms.
As such, we note that RevPAR continues to chug at the bottom end of its historical range but generally improved half-on-half (h-o-h).
That said, we sense Frasers Hospitality Trust manager’s optimism that the improving operational momentum will gather speed on the back of the planned vaccination programmes globally.

The Maritim Hotel Dresden (MHD) remains open albeit soft demand which has been dampened by the temporary closure of the adjoining International Congress Centre, which has now been extended. In the meantime, the manager will work closely with the master lessee and will continue to extend rebates if need be.

While we remain positive on Frasers Hospitality Trust’s growth trajectory, riding on the global relaxation of borders driving distributions higher, most of this relaxation is pointing to start only from 2H21.
As Frasers Hospitality Trust’s year-end for FY21 is in Sep’21, most of the growth will likely come from FY22 instead. We thus cut our estimates by 39%/24%/4% for FY21F/22F/23F respectively. Our target price for Frasers Hospitality Trust is thus lowered to S$0.65.
See

Geraldine WONG DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2021-05-03

SGX Stock Analyst Report BUY MAINTAIN BUY 0.65 DOWN 0.700