SINGAPORE (May 31): Maybank Kim Eng Research is keeping its “buy” call on Frasers Hospitality Trust (FHT) with an unchanged target price of 85 cents, following a slow 2Q19 where distribution per unit (DPU) fell 11.5% y-o-y in line with consensus estimates.
In 2Q19, FHT saw its gross revenue fall 7.6% to $34.6 million while net property income (NPI) was down 9.1% to $25.2 million.
The decline was mainly due to weaker performance at its portfolios in Australia, Malaysia and Japan.
This was exacerbated by depreciation in their respective currencies, which accounted for 53% and 40% of the decline in gross revenue and NPI respectively.
Since the end of April, when FHT released its 2Q19 results, its share price has fallen by close to 8%.
Analyst Chua Su Tye believes the shares are undervalued, compared to its historical and its peers, at just 0.8 times FY19E price-to-book (P/B).
“For now, a re-rating could be led from a potential portfolio reshuffle, given tight cap rates for Sofitel Wentworth Sydney and positive yield-spreads in Europe, supported by its low 34.1% gearing and sponsor’s growing AUM,” Chua says.
Chua opines that FHT’s Australian portfolio, which accounts for 47% of gross revenue and 40% of NPI, will remain under pressure.
The portfolio RevPAR in 2Q19 declined 5.4% y-o-y on the back of lower average daily rate (ADR) and occupancy.
“We believe that Sydney’s trading backdrop remains challenging against new room supply, at 5.7% y-o-y per annum over the next three years and ahead of an estimated 4.0% y-o-y in tourist arrivals,” Chua says.
With its Australian assets accounting for one-third of FHT’s asset under management, Chua says supply-side headwinds down under should prompt management to recycle its assets into Europe, which offers stronger growth fundamentals.
“A successful transaction at a 4.0-4.5% cap rate for the Sofitel Wentworth Sydney could result in a $110-150 million gain, based on our estimates, to fund other deals,” Chua says.
As at 3.48pm, units in FHT are trading half a cent down at 70.5 cents, implying an estimated P/B of 0.8 times and a DPU yield of 6.6% for FY19E.
