Frasers Hospitality Trust’s Latest Earnings: In Line With Expectations

Frasers Hospitality Trust (SGX: ACV) had released its third-quarter earnings for the fiscal year ending 30 September 2015 (FY2015) yesterday evening.

As a brief introduction, Frasers Hospitality Trust, which was listed only a year ago on July 2014, is the first global hotel and serviced residence stapled trust in Singapore’s stock market. You can find out more about its initial public offering (IPO) in here.

Frasers Hospitality Trust’s portfolio, as of 30 June 2015, consists of six hotels and six serviced residences that are located across seven major cities in Asia, Australia, and the United Kingdom. Collectively, these properties, which have a total of 1,928 hotel rooms and 842 serviced residence units, are valued at around S$1.65 billion. (Note: these figures does not include the trust’s latest acquisition, Sofitel Sydney Wentworth, which was completed on 7 July 2015).

With that, let’s dig into the trust’s latest quarterly results.

Financial highlights

The following’s a quick take on Frasers Hospitality Trust’s latest financial figures (do note that we are comparing against the trust’s forecasted numbers given in its IPO prospectus as it’s a relatively new listing):

  1. Gross revenue came in at S$23.7 million, down a minor 3.0% compared to the forecast. The trust cited the implementation of a goods & services tax in Malaysia in April 2015 as a reason for the slight shortfall in revenue; the tax had deterred consumption in Malaysia which affected food & beverage revenue.
  2. Meanwhile, net property income (NPI) of S$19.2 million for the reporting quarter was 1.2% lower than the forecasted figure of S$19.5 million. This was mainly due to the lower gross revenue, though lower expenses had helped to cushion some of the impact.
  3. Fortunately, the lower-than-predicted top-line couldn’t hurt Frasers Hospitality Trust’s bottom-line. The trust’s distributable income for the reporting quarter came in right smack in line with the forecasted figure of S$18.8 million. As for the distribution per unit (DPU), the trust’s actual figure of 1.56 Singapore cents is a slight 0.6% improvement over the forecast of 1.55 Singapore cents.

In a nutshell, Frasers Hospitality Trust’s actual financials were pretty much in line with its own forecasts.

Moving on to the balance sheet, here are some important figures to note:

Frasers Hospitality Trust balance sheet details (30 July 2015)

Source: Frasers Hospitality Trust’s earnings release

From the table above, we can see that Frasers Hospitality Trust’s debt profile remains modest in the reporting quarter, with a gearing ratio of 38.8%. But, there are still some issues to note with the trust’s effective cost of borrowing rising, and the interest cover dropping, over the past three months. The changes are thus far minute, but investors may want to keep an eye on them less they snowball in the future given the possibility of interest rates rising in the future.

That said, Frasers Hospitality Trust has also hedged 78.7% of its debt to mitigate the risk of fluctuating interest rates. This can help partially insulate the REIT from adverse changes in the interest rate environment.

The trust ended the reporting quarter with a net asset per stapled security of S$0.843.

Operational highlights

For the reporting quarter,  Frasers Hospitality Trust’s Singapore and Malaysia portfolios had delivered revenues that were 4% and 35% weaker than forecasted, respectively.

These were due to Singapore’s “soft” rental property market and a general weakening of the market in Malaysia. The trust also attributed the big shortfall in Malaysia to much lower tourist arrivals to the country after the unfortunate aviation incidents that have happened over the past year.

On a brighter note, the other three countries – Australia, Japan, and the United Kingdom – had all chalked up better-than-expected revenue performances in terms of their own local currencies.

Japan’s gross revenue was 17% higher than what was forecasted as a result of an economic recovery in the country. Meanwhile, one-off events like the Queen’s Birthday Weekend and Vivid Festival in Sydney had helped the trust’s Australian properties bring in gross revenue that was 18% better than predicted. Lastly, Frasers Hospitality Trust’s UK operations had strong demand from corporate travel and the beginning of the peak travel season in June to thank for its 4% revenue beat.

Prospects and valuation

Looking ahead, Frasers Hospitality Trust’s Manager believes that the outlook is healthy for all its geographical markets except Malaysia, which is expected to suffer from continued weakness in tourist arrivals.

To drive growth, Frasers Hospitality Trust has also completed its first acquisition – of the aforementioned Sofitel Sydney Wentworth – to tap into the favourable hospitality market in Sydney.

Frasers Hospitality Trust last traded at S$0.81 on Wednesday. This translates to a historical price-to-book ratio of 0.96.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.