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Fraser Hospitality Trust Ends Its Full-Year Results With A Lacklustre Performance

Frasers Hospitality Trust (SGX: ACV) has released its fourth-quarter and full-year earnings for the fiscal year ending 30 September 2015 (FY2015).

Being the first global hotel and serviced residence stapled trust in Singapore, Frasers Hospitality Trust is formed from both Frasers Hospitality Real Estate Investment Trust and Frasers Hospitality Business Trust. As at 30 September 2015, its portfolio consisted of seven hotels and six serviced residences located across seven major cities globally. Investors may have heard of some of the names such as InterContinental Singapore and Fraser Suites Singapore and The Westin Kuala Lumpur.

Collectively, these properties, which have a total of 2,364 hotel rooms and 842 serviced residence units, are valued at around S$1.96 billion. You can read more about the trust here and here.

Financial highlights

The following is a quick rundown of Frasers Hospitality Trust’s 4th quarter financial figures (do note that we are making comparisons with the trust’s forecasted numbers from its IPO prospectus as it was listed only in July 2014):

  1. Gross revenue came in at S$30.8 million, inching up 1.5% compared to the forecast. This was mainly due to strong performance in all the markets but was impacted by weaker performances in the Singapore and Malaysia markets.
  2. Meanwhile, net property income (NPI) of S$25.7 million for the reporting quarter was in line with the top-line, exceeding the forecasted figure by 3.0% due to lower expenses.
  3. Unfortunately, distributable income for the reporting quarter slipped 1.9% to S$22.5 million. The trust cited higher interest expenses derived from a higher proportion of fixed-rate debt than forecasted.
  4. As a result, the trust’s actual figure of 1.66 Singapore cents is a slight 1.2% decrease over the forecast of 1.64 Singapore cents.

To summarise, Frasers Hospitality Trust’s actual financials were pretty much in line with its own forecasts but investors should watch out for any further hike in interest expenses. That said, let’s move on to its debt profile.

As at 30 September 2015
Aggregate Leverage Ratio 38.9%
Interest Cover Ratio 5.3 times
Weighted Average Debt to Maturity 3.3 years
Average all-in Cost of Debt 2.4%
Total Borrowings S$790.6 million

Source: Frasers Hospitality Trust’s earnings release

From the table above, Frasers Hospitality Trust’s balance sheet remains modest in the reporting quarter, with a gearing ratio of 38.9% and low cost of debt of 2.4%. Meanwhile, Frasers Hospitality Trust has also hedged 73.0% of its debt to mitigate the risk of fluctuating interest rates. Nevertheless, investors should keep an eye on the trust’s effective cost of borrowing, lest they start to escalate given the likelihood of interest rates rising in the future.

Operational highlights

For the 4th quarter, properties in Singapore, the United Kingdom and Australia contributed the bulk of the gross revenues, at 24%, 30% and 27% respectively. That said, Frasers Hospitality Trust’s Singapore and Malaysia portfolios had reported revenues that were 12% and 16% weaker than forecasted, respectively.

These were due to on-going renovation works for the InterContinental Singapore coupled with an overall’s “soft” rental property market in Malaysia. The asset enhancement initiatives are set to be completed by Nov 2015.

On the other hand, the other three countries – Australia, Japan, and the United Kingdom – had all displayed better-than-expected revenue performances in terms of their own local currencies due to strong domestic demand.

Prospects and valuation

Ms Eu Chin Fen, Chief Executive Officer of the REIT Manager said:

“We are pleased to present our first set of full year financial results since our listing on 14 July 2014. For FY2015, DI and DPU have both exceeded forecast by 1.2% and 2.6% respectively, with GR and NPI largely in line with our forecast. During FY2015, we grew our portfolio from SGD1.67 billion to SGD1.96 billion with the acquisition of Sofitel Sydney Wentworth in July 2015. We have also commenced the SGD26.0 million transformation of rooms and public areas at InterContinental Singapore. Moving forward, we will be constantly seeking to optimise value for our unitholders by identifying suitable acquisition targets as well as actively reviewing suitable asset enhancement opportunities for our properties.”

With regards to the countries’ outlook the trust is operating in, The Frasers Hospitality Trust’s Manager predicts that the weakening currencies – namely the Australian dollar and the Malaysian ringgit, will propel the number of domestic travels.

Furthermore, the trust expects strong international arrivals in all its properties except for Singapore due to increased competition. That said, the trust may benefit from the Singapore Tourism Promotion Board (“STB”) S$20 million marketing campaign to target leisure, business, conferences and exhibitions.

The trust ended the reporting quarter with a net asset per stapled security of S$0.857. With its last traded price at S$0.775, it translates to a historical price-to-book ratio of 0.90 and an attractive 9.75% distribution yield.

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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.