Frasers Hospitality Trust’s Latest Earnings; DPU down 3.6% despite Higher Revenue

Frasers Hospitality Trust (SGX: ACV), FHT in short, released its fiscal second-quarter earnings (for the three months ended 31 March 2016) on Friday morning.

As a brief introduction for context later, 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.

As at 30 September 2015, 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 and are valued at approximately S$1.96 billion.

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 12.5% year-on-year to S$27.0 million while net property income increased by 17.3% to S$22.2 million.

The good show of results was mainly due to the acquisition of Sofitel Sydney Wentworth in July 2015, but partly mitigated by the weaker performance of its London properties and InterContinental Singapore.

On the other hand, distribution per Stapled Security (“DPS”) of 1.33 cents for the quarter came in 3.6% lower year-on-year due to an enlarged number of units. 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 increased slightly from 38.4% to 39.3% on a year to year basis. Similarly, the trust’s effective cost of borrowing had stepped up from 2.08% to 2.6% while its interest cover had declined from 5.9 times to 4.63.

These are changes investors may want to keep an eye on given the possibility of interest rates rising in the future.

The trust ended the reporting quarter with a net asset per stapled security of S$0.851, a slight decline from the S$0.867 seen a year ago.

Operational highlights

The portfolio performance can be split into the 5 countries which FHT has a presence in. Frasers Hospitality Trust’s strong revenue growth was due mainly to new contributions from the newly acquired Sofitel Sydney Wentworth in June 2015 and commendable performances from the Japan and other Australia properties.

To the latter point, the gross operating revenue (“GOR”) and gross operating profits (“GOP”) of the trust’s Japanese portfolio had increased by 3.3% and 15.5% respectively during the quarter. Meanwhile, the Australian properties, including Sofitel Sydney Wentworth, achieved a remarkable 131.3% increase in GOR and 95.5% growth in GOP.

On the flip side, the Singapore, Malaysia and United Kingdom portfolios have all raked in lower GOR and GOP year-on-year. The Singapore portfolio had been affected by on-going renovation works at Intercontinental Singapore while the assets in the United Kingdom had suffered from numerous issues such as the horrific Paris attacks in November 2015, a weak banking sector, reduced demand from the oil and gas industry and concerns over Brexit.

Correspondingly, The Westin in Kuala Lumpur also saw declines in top and bottom-line due to weak business and consumer sentiments despite stable revenue per average room (RevPAR).

Prospects and valuation

Ms Eu Chin Fen, Chief Executive Officer of the REIT Manager gave some insights on the REIT’s performance and said:

“While our Sydney and Kobe properties did well in the second quarter, our London properties have experienced weakness since the November Paris attacks. At the InterContinental Singapore, performance was affected by renovation works. Although they were fully completed in end-February, our strategy to reposition the hotel is likely to take longer than expected under current market conditions.”

She also let in on some measures on how the management team will deal with the challenges going and commented:

“Moving forward, we continue to work closely with our hotel operators to drive performance and to undertake asset enhancement initiatives to unlock the value of our properties. We remain focused on pursuing yield-accretive, quality assets that are well located in key cities with sound economic fundamentals, so as to provide stability and growth to our Stapled Securityholders”.

Frasers Hospitality Trust last traded at S$0.815 on Friday. 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.