SINGAPORE (July 31): DBS is maintaining its “buy” call on Frasers Hospitality Trust (FHT) with a revised target price of 83 cents.
FHT has a portfolio of quality hotels and a successful acquisition track record such as the purchase of Sofitel Sydney Wentworth but investor interest at times has been muted.
“While FHT’s share price has risen as we had anticipated on the back of an increase in free float post the recent rights issue, the rally is not over in our view as investor interest in FHT still remains high,” says analyst Mervin Song in a Monday report.
“FHT still offers an attractive 6.7% yield which is at a 100bps premium to other hospitality REITs with similar exposure with a lower gearing,” he adds.
While consensus is expecting a lacklustre 1% CAGR in DPU between FY17 and FY19, Song believes this understates the upside potential for FHT.
“Our more bullish view of 5% CAGR is underpinned by expectations of a recovery in the Singapore hospitality market, which the market is sceptical about, as well as full year contributions from the recent acquisitions of Novotel Melbourne and Maritim Hotel Dresden, and continued growth at its Sydney properties given favourable demand and supply fundamentals,” says Song.
Post rights issue, FHT is now in a strong position to pursue acquisition opportunities as its gearing stands at 33-34%. DPU accretive acquisitions would be the next re-rating catalyst for FHT.
“After a weaker than expected 3Q17 results, we trimmed our DCF-based TP to $0.83 from 0.85,” says Song.
Units of FHT are down 0.5 cent at 74 cents. Year to date, the REIT is up 13.85%.
