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What You Should Know About The Performance And Future Of Frasers Centrepoint Ltd’s Hospitality Business

Frasers Centrepoint Ltd (SGX: TQ5) is a real estate company with interests in different geographies and different sectors of the real estate market.

Its focus is mainly on residential, commercial, retail, and industrial properties in Singapore and Australia, and hospitality assets in over 80 cities across Asia, Australia, Europe, and the MENA (Middle East and North Africa) region.

Appropriately, Frasers Centrepoint has three strategic business units (SBUs) and one business unit. They are, Singapore, Australia, Hospitality, and International, respectively.

In early November, Frasers Centrepoint released its full-year earnings for its fiscal year ended 30 September 2017 (FY17). I thought it would be useful to have a look at the business performance and outlook for each of the company’s SBUs. In here, the focus is on the Hospitality SBU, which accounted for 20.0% and 14.2% of Frasers Centrepoint’s total revenue and profit before interest and taxes (PBIT), respectively, in FY17.

The business performance

The table below shows a business-breakdown of the Hospitality SBU’s PBIT in FY17:


Source: Frasers Centrepoint FY17 full year earnings presentation

Frasers Centrepoint categorises its Hospitality SBU into three operational parts, namely, Non-REIT, REIT, and Fee Income.

In the Non-REIT category, PBIT decreased mainly because of lower contributions from businesses in the UK that resulted from uncertainty from the BREXIT vote, and a weaker British pound compared to the Singapore dollar. On a positive note, the Non-REIT category continued to grow its portfolio of rooms under management by adding seven new properties to its portfolio in FY17, and signing up nine new projects across different parts of the world (Vietnam, Indonesia, Germany, Myanmar, Kuwait, and Cambodia).

As for the REIT category, its PBIT growth can be attributed to Frasers Hospitality Trust (SGX: ACV), which benefitted from the addition of Novotel Melbourne on Collins (the property was acquired in late 2016), and a stronger performance across its portfolio.

In all, the Hospitality SBU delivered a strong result in FY17 with double-digit growth in PBIT.

The outlook

We’ve seen that the Hospitality SBU had done well in FY17. But what’s in store for the business in FY18? Here are some important comments from Frasers Centrepoint on the Hospitality SBU given in the earnings release:

“The Group will continue to grow its businesses and asset portfolio in a prudent manner across geographies and business segments. The Group is looking to grow its recurring income from a geographically-diversified earnings base. The Group will also focus on optimising capital productivity and strengthening its REIT platforms.”

Given these comments, investors can expect the Hospitality SBU to continue to expand its Non-REIT business through signing up more rooms across the world to manage, and add more hospitality properties into the REIT category.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.