On June 13, Frasers Property (FPL) and the manager of Frasers Hospitality Trust (FHT) announced an offer of 70 cents to all of FHT’s stapled security holders to privatise the hospitality trust via a scheme of arrangement. The offer from FPL represents a premium to the last announced net asset value of around 65 cents, and is a premium of 43.8% and 16.7% over the 12-month VWAP and recent analyst consensus target price respectively. The offer is also above FHT’s historical trading multiples since its IPO. Moreover at a time when the remaining, shrinking list of hospitality trusts are trading at discounts to NAV, this looks like the best and highest value to divest of a hospitality trust.
The joint announcement by FPL and FHT’s manager points to obstacles in growing distribution per stapled security (DPS) and NAV. Hospitality is a difficult business. “Whilst FHT’s portfolio valuation grew by 35% since IPO, it has not managed to translate such growth into DPS and NAV growth due to the muted growth within the hospitality sector in the markets FHT operates in and strengthening of the Singapore dollar against FHT’s operational currencies,” FHT’s manager says
In addition, the recovery from the pandemic is uncertain and patchy as recessionary pressures loom. Over and above this, QT and higher risk free rates are likely to pressure the trading price of FHT making it tough to acquire accretively.
“The endemic nature of Covid presents significant risks to the hospitality sector while it recovers gradually. Geopolitical tensions and looming recessionary pressures add further uncertainty to the recovery outlook. The further strengthening of the Singapore dollar could potentially limit any revaluation gains and DPS growth amidst the recovery,” FHT’s manager continues.
While these challenges also pertain to hospitality trusts such as CDL Hospitality Trusts (CDLHT), its sponsor City Developments (CDL) has decided to offload some of its stake in CDLHT to CDL shareholders instead, and ready CDLHT for acquisitions from Millennium & Copthorne. In view of this, FPL should be lauded for doing the right thing, analysts and market observers say.
FHT was listed in 2014, at 88 cents per stapled security, with a forecast yield of 7%. Including a rights issue in 2016, the entry price at IPO would be adjusted to 81.3 cents.
