Analysts at DBS Group Research and Maybank Securities are keeping “buy” on Frasers Hospitality Trust ACV (FHT) following the release of its 2HFY2023 ended September results.
Maybank analyst Li Jialin notes that FHT’s Japan and UK assets showed the strongest revenue per available room (RevPAR) growth in 2HFY2023 due to higher occupancy and average daily rate (ADR) respectively. Its Singapore and Malaysia assets both saw ADR growth at 7% and 6% h-o-h respectively, accompanied by robust occupancy.
Its Australian assets however showed softer performance with 12% decline in ADR, partially offset by largely resilient occupancy. Li says this was led by tepid corporate and group demand in Melbourne, on top of new hotel openings of over 4,000 keys in the past 24 months.
While FHT’s occupancy in 2HFY2023 across its portfolio, occupancy is still shy of pre-pandemic levels, Li notes. Overall, RevPAR in all markets is 2%-12% ahead of 4QFY2019 levels, he highlights.
DBS analysts Geraldine Wong and Derek Tan point out that FHT’s full-year valuations came in stronger than expected, with a valuation uplift seen across all portfolio assets in local currency terms, except for Maritim Dresden in Germany which declined 5.3% y-o-y. Portfolio valuation rose 1.7% y-o-y in Singapore dollar terms, they add.
The analysts observe that cap rates have expanded by 50 to 150 basis points in overseas markets, which has been more than compensated by strong cash flow growth to reflect an increase in valuation in local currency terms.
“FHT’s year-end revaluation was generally within our expectations that an upward trajectory in cash flow recovery will help support valuations, despite an expansion in cap rates, which we have seen in other asset classes for the corresponding geographies,” Wong and Tan say.
As the trust’s refinancing exercise is in July 2024, Maybank does not expect the full impact from higher cost of debt until FY2025. A relatively stable Japanese yen base rate could also cushion the increase from Singapore dollar/Malaysian ringgit denominated loans, part of which carry fixed interest rates of 3.08%/4.85% currently, Li adds.
Maybank has lowered its FY2024-FY2025 revenue estimates by 6% to 8% and rolled forward its valuation base to FY2026. In view of the upcoming additional supply in FHT’s key markets namely Edinburgh, Kuala Lumpur and Dresden, Li sees the trust entering a more competitive environment in FY2024 against the backdrop of normalizing RevPAR growth.
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“Nonetheless, strong event pipeline and recovery tailwinds should underpin growth. We lower our DPU [estimates] by about 3%-6% for FY2024-FY2025 and trim target price to 53 cents from 54 cents previously.”
Meanwhile, DBS analysts highlight more optimism on meetings, incentives, conferences and exhibitions (MICE) demand going into FY2024. They believe FHT’s corporate-positioned hotels in Singapore will continue to see further traction from the return of corporate travel as a strong MICE calendar unfolds this year.
“Overseas low-hanging markets such as Japan and Germany will also depend on the return of corporate events in their respective submarkets to drive gross profits, indicating that a turnaround can happen quickly in a matter of a few quarters,” the analysts add.
DBS has raised its target price to 62 cents from 58 cents previously.
As at 11.13am, units in FHT are trading 0.5 cents lower or 0.98% down at 50.5 cents.
