FRASERS Hospitality Trust hotels' performance generally picked up from the start of the financial year to end-June, the manager said in a third-quarter update on Thursday.

 

Still, average daily rates and revenue per available room (RevPAR) were all lower year on year for the nine months to June 30, in local currency terms. Occupancy rates also remain depressed, as the coronavirus batters the global hotel industry.

 

The manager called the near-term outlook " challenging and fluid" , although a rebound in domestic tourism could benefit the trust' s hospitality assets in Australia, Japan and Britain.

 

Across the trust' s Australian portfolio, RevPAR was down 52.3 per cent to A$68. In Singapore, it was down 31.4 per cent to S$120, and in Britain, down 68.9 per cent to £ 19 (S$35.90). These three markets house the lion' s share of the trust' s 15 properties.

 

Meanwhile, RevPAR for Japanese property ANA Crowne Plaza Kobe was lower by 40.8 per cent to 3,798 yen (S$46.80) RevPAR for The Westin Kuala Lumpur in Malaysia shrank to just RM25 (S$8) for the nine months, compared with 204 ringgit before.

 

Maritim Hotel Dresden in Germany did not report average daily rate, RevPAR or occupancy, on limitations under the master lease agreement. But its performance " continued to be affected by the temporary closure of the adjoining International Congress Centre, which has been extended with no fixed re-opening date" , the manager disclosed in its business update.

 

The portfolio had a weighted average lease expiry of 12.2 years as at end-June, with no master leases due for renewal until 2024.

 

Gearing stood at 42.1 per cent, after a debt-funded redemption of perpetual securities in May, while the weighted average debt to maturity was 2.9 years.

THE decision by Frasers Hospitality Trust (FHT) to redeem its S$100 million, 4.45 per cent perpetual securities may lead to an uptick in distributions if the managers repay the perps with debt, DBS Group Research said.

 

This is assuming the stapled group is able to obtain new debt priced close to its average weighted cost of debt of 2.2 per cent, compared to the potential estimated reset coupon of 3 to 3.2 per cent.

 

FHT currently trades at a " steep discount" to its net asset value (NAV), DBS said.

 

Stapled securities of FHT closed at 55 Singapore cents on Tuesday, down 0.9 per cent or 0.5 cent. That is 84.3 per cent of FHT' s net asset value of 65.21 Singapore cents per stapled security as at end-2020.

 

DBS therefore thinks it unlikely that the trust will raise money by issuing more stapled securities, as doing so at the current valuation would be a " dilutive exercise" . Issuing more perps, meanwhile, would be " tough" because the " weakness in the hospitality industry makes it tough to price a new issuance optimally" .

 

It believes the managers of FHT are likely to take on more debt instead.

 

The research team projects an estimated accretion of about one per cent to its FY2021 distribution forecast, assuming a lower cost of funds.

 

If FHT were to take on S$100 million of debt, DBS said FHT' s gearing ratio would increase from 37.8 per cent at end-2020 to about 42 per cent. In its report, the research team acknowledged the higher gearing might inhibit acquisitions or strategic asset enhancement initiatives. But the reduced financing cost will also allow for a leaner operating structure as FHT repositions to ride through sector headwinds, which is the immediate focus for the stapled group.

 

DBS also flagged that if FHT repays the perpetual with debt, there could be some repercussions for future perpetual issuances. This is because the company will " likely not be accorded equity treatment" from rating agencies such as S& P and Moody' s.

 

Nonetheless, DBS maintains its view that FHT offers " compelling value" . The bank expects this would continue to attract market interest as one of the potential privatisation plays within the real estate investment trust sector.

 

FHT' s sponsor holds 62 per cent of FHT. The counter also has low trading liquidity. Both these factors make it a " compelling case" for privatisation, DBS said.

 

It estimates that privatisation will cost less than S$500 million, at the current NAV, while giving the acquirer control of some 4,000 room keys and landmark hotels.

 

FHT' s portfolio comprises hotels and serviced residences across Singapore, Australia, the United Kingdom, Japan, Malaysia and Germany. These include the InterContinental Singapore and The Westin Kuala Lumpur, in Malaysia.

 

FHT will redeem its perps on May 12, together with distribution accrued to May 11. This includes any arrears of distribution and any additional distribution amounts.

 

THE decision by Frasers Hospitality Trust (FHT) to redeem all outstanding securities of its S$100 million, 4.45 per cent perpetual securities may lead to a potential uptick in distributions if the managers repay the perps with debt, DBS Group Research said.

 

This is assuming the stapled group is able to obtain close to its average weighted cost of debt of 2.2 per cent, compared to the potential estimated reset coupon rate of about 3 to 3.2 per cent.

 

As the stock trades at a " steep discount" to its net asset value (NAV), the report highlighted that it does not expect an equity fund raising to repay the perpetuals as it would be considered a " dilutive exercise" . Thus the analyst believes that the managers are likely to repay the perpetual securities with debt.

 

The research team projects an estimated accretion of about 1 per cent to its FY2021 distribution forecast.

 

DBS added that an additional debt on the balance sheet of S$100 million will increase the current gearing level from 37.8 per cent in December 2020 to about 42 per cent. While the report acknowledged that the higher gearing might inhibit acquisitions or strategic asset enhancement initiatives (AEI), the reduced financing cost will allow for a leaner operating structure as the repositions to ride through sector headwinds, which is the immediate focus for the stapled group, said the report.

 

DBS added that if FHT repays the perpetual with debt, it could result in reduced flexibility for the stapled group to tap future perpetual issuances in the longer term. This is because the company will " likely not be accorded equity treatment" from rating agencies such as S& P and Moody' s.

 

Nonetheless, DBS maintains its view that FHT offers " compelling value" . At its current price of S$0.55 per unit, it is trading at 0.85 times its net asset value. The bank expects this would continue to attract market interest as one of the potential privatisation plays within the Singapore stapled groups sector.

 

FHT will redeem the securities on May 12, when the stapled group will redeem S$250,000 for every S$250,000 in nominal amount of perps, together with distribution accrued to May 11. This includes any arrears of distribution and any additional distribution amounts.

 

THE manager of Frasers Hospitality Trust (FHT) said the real estate investment trust (Reit) will redeem at par all the outstanding securities of its S$100 million, 4.45 per cent perpetual securities. It will do so on May 12, the first call date.

 

FHT will redeem S$250,000 for every S$250,000 in nominal amount of perps, together with distribution accrued to May 11. This includes any arrears of distribution and any additional distribution amounts, the manager said in a bourse filing on Monday.

 

The Central Depository (CDP) will present and surrender the global certificate on May 12 by paying the CDP paying agent. Following that, the perps will be cancelled and delisted from the Singapore bourse.

 

They were issued back in 2016, when FHT' s manager said net proceeds will be used for the financing of potential acquisition and investment opportunities for Frasers Hospitality Real Estate Investment Trust (FH-Reit) and its subsidiaries. The proceeds will also be used for working capital requirements and general corporate purposes.

 

FHT is a stapled group comprising FH-Reit and Frasers Hospitality Business Trust.

 

FRASERS Hospitality Trust' s (FHT) managers announced after trading hours on Wednesday that its chief executive Colin Low Hsien Yang has resigned - after less than two years in the role - to " pursue other professional interests outside the real estate industry" .

 

His resignation is effective April 10, 2021. The managers are now recruiting someone to replace him.

 

He was appointed as CEO of Frasers Hospitality Trust' s managers on July 1, 2019. Before this position, he was CBRE' s head of investment properties in Europe, Middle East and Africa for about nine months, going by his LinkedIn profile. Before that, he held various positions in Frasers Hospitality Trust and Frasers Hospitality over several years.

 

FHT is a stapled group comprising Frasers Hospitality Real Estate Investment Trust and Frasers Hospitality Business Trust.

 

FRASERS Hospitality Trust (FHT) is banking on its properties in countries with a predominant domestic travel market to recover faster than the others.

 

This includes properties in Australia, Japan and the United Kingdom, said FHT, a stapled group comprising Frasers Hospitality Real Estate Investment Trust and Frasers Hospitality Business Trust.

 

" While demand for accommodation is likely to be constrained by health concerns and the level of post-Covid-19 austerity, pent-up travel demand seems most evident within the leisure segment," said FHT in response to shareholders' questions ahead of its annual general meeting to be held on Wednesday.

 

It expects corporate travel demand to be the next segment to recover while large-scale Mice (meetings, incentives, conventions and exhibitions) events, will take longer to return.

 

On potential acquisition plans, FHT said there have been few hotel transactions as sellers who had put their assets on the market before the pandemic have now put their plans on hold.

 

Still, the investment team will continue to keep an eye out for good-quality distressed assets coming onto the market, said FHT.

 

" Any opportunities, including M& As, that we pursue will have to be compelling and strategic, with investment decisions weighed carefully against funding options available, market conditions for equity fund raising and the cost of equity," it said.

 

On rebalancing its portfolio, FHT noted that the pandemic may not " present the right time" to get the best price possible for any asset sale.

 

In response to queries on overcoming the challenges posed by the pandemic, FHT said that it has, in collaboration with its hotel and serviced residence operators, proactively taken " painful but necessary measures" to address the operating and financial impact of the pandemic.

 

This includes cost-containment measures to reduce operating expenses and conserve cash. Discretionary expenditure and non-essential capital expenditure have also been suspended, while support measures by various governments such as property tax rebates and wage subsidies have been pursued.

 

To sustain revenue, FHT had secured quarantine businesses in Singapore, Sydney and Melbourne. Its two hotels Sofitel Sydney Wentworth and Novotel Melbourne on Collins continue to pull in revenue from the quarantine business.

 

FHT added that its other properties are also seeking out revenue through domestic travel or staycation business. Some of these properties have launched new offerings to meet the evolving needs of the local market others are exploring new ways to utilise existing space to drive revenue.

 

FHT also pointed out that while recovery is underway as vaccines roll out, recovery is expected to take some time due to production challenges and complex distribution processes.

 

In response to queries about factors driving down the fair valuations of FHT' s investment properties, FHT said that the valuations of all country portfolios in local currency terms declined year on year (yoy) as the impact of the pandemic and the uncertainty of recovery have affected the short- to medium-term cash flow, and consequently, the values of the properties.

 

This is despite capitalisation rates and discount rates remaining largely unchanged from the previous financial year.

 

As at Sept 30, 2020, FHT' s investment portfolio was valued at S$2.25 billion by independent valuers, down 3.5 per cent from S$2.33 billion a year ago.

 

But compared to the previous financial year, all functional currencies appreciated against the Singapore dollar in FY2020, leading to a smaller yoy decline in total portfolio valuation of 3.5 per cent to S$2.25 billion.

 

FHT added that it adopts an active capital management strategy and seeks to diversify its sources of funding to optimise its capital structure. It also spreads out debt maturity and hedges its interest rate exposure.

 

There is thus no debt maturing until FY2022 and in any one year, no more than 30 per cent of its total debt is due. To manage interest rate risk, about 75 per cent of total debt are on fixed interest rates. It has also been able to secure lower floating rates on the balance 25 per cent total debt to reduce its effective cost of borrowing to 2.3 per cent, down from 2.5 per cent a year ago. As at Sept 30, 2020, FHT' s gearing stood at 37.7 per cent.

 

" We remain in compliance with our debt covenants and have adequate reserves to fulfil our obligations," said FHT, adding that 96.3 per cent of its total assets remain unencumbered.

 

With the leverage limit for S-Reits being raised from 45 per cent to 50 per cent, FHT said that it continues to have ample debt headroom.