Latest Earnings From Frasers Hospitality Trust: Strong Growth Seen

Frasers Hospitality Trust (SGX: ACV) had released its fiscal first-quarter earnings (for the three months ended 31 December 2015) yesterday evening.

As a brief introduction, Frasers Hospitality Trust is the first global hotel and serviced residence stapled trust in Singapore. It comprises both Frasers Hospitality Real Estate Investment Trust and Frasers Hospitality Business Trust.

Frasers Hospitality Trust’s portfolio comprises of seven hotels and six serviced residences that are located across seven major cities in Asia, Australia, and the United Kingdom. Collectively, these properties have a total of 2,364 hotel rooms and 842 serviced residence units.

You can read more about the trust in here and catch up on the results from its last quarter here. With that, let’s dig into Frasers Hospitality Trust’s latest quarterly results.

Financial highlights

For the reporting quarter, the trust’s total gross revenue grew by 16.2% year-on-year to S$31.4 million while net property income had increased by 16.9% to S$26.3 million.

The strong top-line growth has managed to trickle to the bottom-line with the trust’s distributable income jumping 23.2% year-on-year to S$23.7 million. This lead to a 7.5% increase in distribution per stapled security (DPS) to 1.72 Singapore cents. Investors should note that the DPS growth was considerably lower than that of distributable income largely as a result of the 150 million new stapled securities created for a private placement in June 2015.

Moving on to the balance sheet, Frasers Hospitality Trust’s gearing had declined slightly from 40.0% at end-2014 to 38.8%. But, the trust’s effective cost of borrowing had stepped up from 1.8% to 2.8% while its interest cover had declined from 6.7 times to 5.35.

Additionally, Frasers Hospitality Trust has managed to give its balance sheet more protection from short-term interest rate hikes given that it has increased its proportion of fixed-rate debt from 78.8% a year ago to 87.9%.

The trust ended the reporting quarter with a net asset per stapled security of S$0.86, a slight decline from the S$0.8605 seen a year ago.

Operational highlights

Frasers Hospitality Trust’s strong revenue growth was due mainly to new contributions from the newly acquired Sofitel Sydney Wentworth in June 2015 and stellar performances from the Japan and other Australia properties.

To the latter point, the gross revenue and NPI of the trust’s Japanese portfolio had increased by 15.3% and 9.8%, respectively, during the quarter. Meanwhile, the Australian properties, excluding Sofitel Sydney Wentworth, had a 28% increase in gross revenue and 32% growth in NPI.

The Singapore and United Kingdom portfolios were the disappointing ones as they delivered year-on-year declines in gross revenue of 16.5% and 8.3%, respectively. The Singapore portfolio had been affected by on-going asset enhancement initiatives (AEIs) at Intercontinental Singapore while the assets in the United Kingdom had suffered from seasonality issues that were made worse by the horrific Paris attacks in November 2015.

Malaysia was a decent geographical market for the trust in the quarter, with the asset in the country – The Westin in Kuala Lumpur – seeing gross revenue and NPI growth of 5.3% and 3.8%, respectively.

Prospects and valuation

In the reporting quarter, Australia, Singapore, the United Kingdom, Japan, and Malaysia had accounted for 31%, 23%, 22%, 16%, and 8% of Frasers Hospitality Trust’s total gross revenue.

Looking ahead, Frasers Hospitality Trust expects the hospitality environment in Singapore to be competitive as a result of a rise in room supply. In Malaysia, the trust expects the hospitality environment to be challenging as well “in the face of increasing room supply in [Kuala Lumpur] against softer economic activity.”

In the United Kingdom, the trust is optimistic, but pointed out potential risks stemming from “wider global economic instability,” and security threats in the Europe region.

Japan and Australia are the brighter spots for Frasers Hospitality Trust as it believes that the outlook is healthy for both geographical markets.

Frasers Hospitality Trust last traded at S$0.72 on Thursday. This translates to a historical price-to-book ratio of 0.84.

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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.