Frasers Hospitality Trust’s Security Price Is Down 12% In The Last 6 Months: Here’s Why

Frasers Hospitality Trust (SGX: ACV) is a stapled trust that comprises a real estate investment trust and business trust.

As its name suggests, Frasers Hospitality Trust focuses on hotels and serviced residences around the world. Its portfolio currently consists of 16 properties (10 hotels and six serviced residences) located across nine cities in Asia, Australia, and Europe.

Over the last six months, Frasers Hospitality Trust’s price has fallen by 12%. What has happened?

Reasons for a decline

There are many reasons why a REIT’s price could decline.

But, the reasons can generally be classified as business-performance-related, or investor-sentiment-related. The former deals with how a REIT’s business has performed or is expected to perform. And in terms of business performance, one of the really important numbers would be the REIT’s distributions.

Meanwhile, the latter is about the overall mood of market participants – are investors more greedy than fearful, more pessimistic than optimistic et cetera? In general, negative emotions (fear and pessimism) tend to drag down the prices of stocks while positive emotions (greed and optimism) tend to push up stock prices.

In the case of Frasers Hospitality Trust, it appears to be the latter at work.

The case with Frasers Hospitality Trust

The trust’s latest financials are for the 12 months ended 30 September 2016. In that period, Frasers Hospitality Trust’s distribution per stapled security (DPS) fell by 10.1% year-on-year due to an increase in the number of stapled securities in existence.

Frasers Hospitality Trust had undertaken a rights issue in September 2016 to acquire Novotel Melbourne, which resulted in a 27% jump to 1.837 billion in the number of stapled securities. This more than offset a 10% increase in the trust’s distributable income.

What’s next

Frasers Hospitality Trust’s lower distribution per stapled security had likely resulted in the decline in the trust’s price.

But, it’s worth noting that contributions from Novotel Melbourne have yet to show up in the trust’s financials (the acquisition was completed only on 20 October 2016). That being said, pro-forma calculations presented by the trust when it acquired Novotel Melbourne showed that the purchase was not yield-accretive.

If you like what you've seen, you can get even more investing insights and analyses from The Motley Fool's weekly investing newsletter Take Stock Singapore. It's FREE, so do check it out here.

Also, like us on Facebook to follow our latest news and articles. The Motley Fool's purpose is to help the world invest, better.

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