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Latest Earnings from Frasers Hospitality Trust: What’s Next After A 10% Decline In Distributions For The Year?

Last Friday, Frasers Hospitality Trust (SGX: ACV) reported its full-year and fourth-quarter earnings for its fiscal year ended 30 September 2016.

As a quick background, Frasers Hospitality Trust is a stapled trust that comprises a real estate investment trust and business trust. It bills itself as the first trust in Singapore’s stock market that focuses on hotels and serviced residences around the world. Right now, its portfolio consists of 16 properties located across nine cities in Asia, Australia, and Europe.

With that let’s dive into the trust’s financial results to see how it performed.

Financial highlights

The following are some of Frasers Hospitality Trust’s latest financial numbers:

  • Gross revenue for the quarter rose 8.6% to S$33.5 million from S$30.8 million a year ago. For the full year, gross revenue increased by 17.1% to S$123.6 million.
  • Net property income followed suit (NPI) for the reporting quarter, increasing by 11.3% year-on-year to S$28.6 million. For the full year, it was up 20.6% to S$104.2 million.
  • But, income available for distribution and distribution per stapled security (DPS) had declined by 2.6% and 9.4%, respectively, for the reporting quarter. The income available for distribution came in at S$21.9 million while DPU clocked in at 1.19 Singapore cents. For the full year, distributable income grew 10% to S$84.9 million, but the DPS had slipped by 10.1% to 5.23 cents. A rights issue announced on 9 September 2016 had enlarged the trust’s securities count, leading to the lower DPS for the quarter and year.
  • Frasers Hospitality Trust’s net asset value (NAV) per stapled security had decreased by 4% from S$0.8636 a year ago to S$0.8290.

The trust saw growth in gross revenue and net property income in the quarter due to the acquisition of Maritim Hotel Dresden in June 2016 and the strong performance of its Sydney’s properties. The disparity between the performance of the trust’s distributable income and gross revenue in the quarter can be explained by the soft performance of the portfolio in Singapore and the United Kingdom.

For the financial year ended 30 September 2016, gross revenue, net property income, and distributable income all grew due to Frasers Hospitality Trust’s acquisitions of Sofitel Sydney Wentworth and Maritim Hotel Dresden as well as growth from the other Sydney properties and ANA Crowne Plaza Kobe.

Moving on to the trust’s debt profile, here are some important figures:

frasers-hospitality-trust-balance-sheet
Source: Frasers Hospitality Trusts’ earnings presentations

From the table above it can be seen that the trust has taken a step back in terms of its interest cover ratio, average debt duration, average cost of funding, and total debt.  The improvements were seen in the increased debt duration and higher proportion of fixed rate borrowings.

Frasers Hospitality Trust has no debt coming due in 2016 and S$115 million maturing in 2017. Investors may want to watch for the trust’s progress in refinancing its borrowings.

Operational highlights and future outlook

The trust’s Australian portfolio experienced higher revenue per available room (RevPAR), higher average daily rate (ADR), and a higher occupancy rate in the reporting quarter. These figures grew by 5.6% (to A$206), 3.7% (to A$223), and 2 percentage points (to 92.7%), respectively.

Frasers Hospitality Trust added that “while Sydney continues to benefit from a busy events calendar, the conference business at Sofitel Sydney Wentworth was soft due to increased competition.”

On the Singapore side, there was Gross Operating Revenue (GOR) and Gross Operating Profit (GOP) growth of 10.7% and 15.9%, respectively, in the reporting quarter. That’s because InterContinental Singapore saw all rooms return to operations – some rooms were under renovation a year ago.

Interestingly, Fraser Suites Singapore saw lower RevPAR in the fourth-quarter of 2016 due to the pain felt in the oil & gas-related accounts. Right now, “the property is actively pursuing long stay accounts by targeting at industries with better growth prospects (e.g. IT and pharmaceutical) and companies that are relocating.”

Over in the UK, the trust’s portfolio suffered from weaker business sentiment after Brexit. The trust said its properties in the UK saw declines in GOR and GOP of 1.5% and 2.9%, respectively, compared to a year ago. As for Japan, Frasers Hospitality Trust said a lower number of inbound guests had led to lower occupancy in ANA Crown Plaza in the reporting quarter. GOR and GOP there had slipped by low single-digit percentages as a result.

Coming to Malaysia now, industries apart from oil and gas had a larger appetite for stays in Frasers Hospitality Trust’s The Westin Kuala Lumpur. Growth in the property’s food & beverage retail outlets also helped to offset weakness seen in bandquet and catering functions. In a similar manner to ANA Crown Plaza, The Westin Kuala Lumpur’s GOP and GOR both declined by low-single-digit percentages.

Frasers Hospitality Trust’s securities closed at a price of S$0.69 each last Friday, implying a price to book ratio of 0.84 and a trailing distribution yield of 7.6%.

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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 Esjay does not own shares in any companies mentioned.