A rebound is underway for Frasers Hospitality Trust (FHT), with vaccine distribution anticipated in 2021, say DBS Group Research analysts Derek Tan and Geraldine Wong in a Nov 26 note.
Tan and Wong are maintaining their “buy” call on the trust with a raised target price of 70 cents, up from 65 cents.
“We maintain our view that Frasers Hospitality Trust (FHT) offers compelling value at 0.7x P/NAV, which is below replacement costs. The current price which is 40% below pre-Covid-19 level remains an attractive level for investors for an overlooked stock. Prospective FY2022F yields of approximately 8.0% is attractive,” say Tan and Wong.
FHT provides investors exposure to one of the largest international hospitality portfolios by number of keys. Its geographically diversified portfolio of 15 quality assets are in prime locations across 9 key cities in Asia, Australia and Europe.
Tan and Wong note that FHT is one of the more diversified S-REITs among its peers, with many opportunities to tap on the gradual reopening of the global hospitality sector. Its exposures, UK and Australia, are staring to relax its domestic travel restrictions which bodes well for its portfolio performance in the coming quarters while its Singapore hotels should benefit from the robust demand for staycations and gradual reopening of the borders, they add.
See: Analysts divided on Frasers Hospitality Trust after weak 4Q results
DBS considers FHT “a laggard no longer”, with “compelling value”. According to Tan and Wong, FHT’s price is catching up with its peers, supported by a robust approximately 30% compound annual growth rate (CAGR) in distribution per unit (DPUs) over the medium term.
“Its portfolio of Australia and European hotels (50% portfolio exposure) should start to see better prospects on the back of loosening of domestic travel restrictions while Singapore (36% exposure) sees incrementally stronger earnings come 2HFY2021,” note the analysts.
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In DBS’ scenario analysis of a 68%/89%/95%/100% catch up in revenue per available room (RevPARs) compared to pre-Covid-19 levels, FHT should achieve 90% of its pre-Covid-19 DPU by FY2022, say Tan and Wong, driven from a mix of organic growth and acquisitions. In a more bullish scenario, FHT may exceed its pre-Covid-19 DPU by FY2023.
Going private may also be within means for FHT’s sponsor, Frasers Group. “Given the Sponsor’s significant 62% stake in FHT and relative illiquidity vs peers, we believe that the stock remains an attractive take-over target given that it cost less than $500 million to take it private and gain control of FHT's portfolio of approximately 4,000 room keys and landmark Singapore hotels,” they add.
As at 1.17pm, units in FHT are trading 1 cent higher, or $1.96% up, at 52 cents.
