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3 Takeaways About Frasers Hospitality Trust
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By: Ong Qiuying
Articles (131) Profile

Since the takeover by Thai tycoon, Charoen Sirivadhanabhakdi, Fraser & Neave (F&N) has undergone some major transformations. As widely expected, the shake-up saw the conglomerate break down into its major businesses of food and properties. Just six months after the listing of Frasers Centrepoint (FCL), its property arm is now spinning off its hospitality assets into a trust that marks the first step to merge the Charoen property assets.

Perhaps considered one of the late parties to join the hospitality block, FCL’s move to create another real estate investment trust (REIT) could not have been a more opportune decision given the additional boost from its new shareholder’s strong portfolio of international hotels. Frasers Hospitality Trust (FHT) will raise $367.9 million from the offering and join the REIT block on 14 July 2014.

Global Footprint
FHT will be the first and one of the largest global hotels and serviced residence trust by number of rooms. FHT’s initial portfolio will comprise 12 properties including six hotels and six serviced residences, coming from Charoen’s TCC Group and FCL, as its sponsor.

The portfolio will have a total of 1,928 hotel rooms and 842 serviced residence units, valued at approximately $1,666.5 million, located in Singapore, Australia, United Kingdom, Japan and Malaysia, giving it a huge exposure to overseas markets.

Not only are the properties located in gateway cities, a positive demand is expected, driven by the favourable hospitality growth trends such as increased tourism and MICE (meetings, incentives, conferencing and exhibitions) developments, promoting these gateway cities as leading destinations.

Table 1: Portfolio Of Singapore-Listed Hospitality Trusts

Source: Compiled From Reports On SGX

Impressive Portfolio Pipeline
What is even more exciting is its lineup of potential pipeline expansion. FHT will have access to acquisition opportunities in all income-accretive hospitality assets of FCL and TCC Group’s assets outside of Thailand. In total, FHT has the right of first refusal (ROFR) to 18 properties across 10 countries.

One of FHT's ROFR Properties, Frasers Suites Perth

These assets provide a visible pipeline to FHT, offering potential opportunities for portfolio growth. Assuming the acquisition of all the ROFR properties materialise, the total number of hotel rooms and serviced residence units of FHT will increase by 146.4 percent and 134.8 percent respectively, resulting in a total increase in portfolio size of approximately 142.9 percent.

Notably, Eu Chin Fen, chief executive officer of the REIT manager also noted that there could be a couple of assets ready in the next 15 to 18 months and would negotiate a deal to inject the assets at a reasonable price when the time is right.

According to Moody’s, FHT’s portfolio provides a good revenue mix that allows it to enjoy potential upside from the more cyclical tourism patterns and income stability from serviced residences. Furthermore, most of its assets are located in prime areas with good connectivity, allowing FHT to attract a good spread of leisure and corporate travellers.

Market Reception
Also heating up the offer was a strong uptake from institutional and cornerstone investors. FHT’s institutional offering received indications of interest valued at $2.5 billion, representing approximately 21 times of the placement tranche, with a strong tilt to the top 12 accounts.

Its cornerstone investors, comprising of DBS Bank, DBS Private Bank, Fortress Capital Management, Metro Holdings and more, were also allotted around 233 million of FHT’s units with no lock-up period.

While the demand for the trust is strong, it remains to be seen whether it can live up to its potential. Recent listings of hospitality trusts in Singapore have been rather unexciting and lacklustre. Both Ascendas Hospitality Trust and Far East Hospitality Trust, which were listed in 2012, have been trading under water while OUE Hospitality Trust is only up marginally.

As hospitality REITs continue to be more dependent on external factors such as tourism and global economy outlook while most other REITs generate stable cash flow from tenants who are locked in rental contracts over stipulated time frames, the hospitality REITs are generally viewed more risky than other types of REITs such as retail or commercial.

Table 2: Price Performance Of Recent Hospitality Trust Listings

Source: Compiled From Reports On SGX

SI Research Takeaway
As one of the largest global hospitality REIT to be listed, FHT certainly offers bright spots for investors. However, I believe the beneficiaries are not just FHT. With the spin-off of the hospitality REIT, FCL’s capital can be recycled for new opportunities and adds an additional revenue stream to its current channel of management fees.

It is difficult not to give the entire Frasers group a second look as it undergoes all these transformations since its takeover. Furthermore, the breakdown of the once massive and diversified F&N conglomerate now provides an opportunity for investors to better understand its varied businesses before deciding which business to be exposed to.

Read more about Frasers Centrepoint here.

Qiuying oversees the construction and real estate investment trusts sectors at Shares Investment.

Please click here for more information about this author.

Frasers Hospitality Trust  0.725 +0.010 +1.40%   
Business: A stapled group comprising Frasers Hospitality REIT and Frasers Hospitality Business Trust.

Insight: Apr-19, 1H19 gross revenue sank 4.7% to $75.3m and... Read More
Ascendas Hospitality Trust  1.140 -- --   
Business: A stapled group comprising Ascendas Hospitality Real Estate Investment Trust and Ascendas Hospitality Business Trust.

Insight: May-19, FY19 revenue fell 6.3% to $190.5m while NP... Read More
Far East Hospitality Trust  0.700 -- --   
Business: Invests in a diversified portfolio of income-producing hospitality-related real estate in Singapore. [FY18 Turnover] Hotels & services residences (80.6%), retails & offices (19.4%).

Insight: May-19, 1Q19 gross revenue increased 8% to $27.8m ... Read More
CDL Hospitality Trusts  1.640 +0.010 +0.61%   
Business: A stapled group comprising CDL Hospitality REIT and CDL Hospitality Business Trust.

Insight: Apr-19, 1Q19 gross revenue and NPI dropped 10.6% a... Read More

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