Is Frasers Hospitality Trust’s Portfolio Resilient to Macroeconomic Conditions?

Frasers Hospitality Trust (SGX: ACV), or FHT for short, is a hotel and serviced residence stapled trust listed in Singapore. The trust currently has a portfolio of 15 assets in nine cities in Asia, Australia and Europe. There is a total of 3,914 rooms, comprising 3,072 hotel rooms and 842 serviced residence units.

To determine if FHT has a portfolio that is resilient to macroeconomic conditions and has the potential to continue to increase its distributions to unitholders, I have decided to look into three key aspects of its portfolio.

Portfolio diversity

As mentioned earlier, FHT has a property portfolio that is focused solely on assets that operate within the hospitality sector. Because of that, the trust is susceptible to any disruptions or downturns in the sector. For instance, FHT will be affected if short-term leases through sites such as Airbnb or HomeAway eat into their market share.

That said, most property-related trusts or REITs in Singapore usually have a focused portfolio that operate within a single sector. This is to streamline the operations of the trust and to leverage on the experience and expertise of the management team. Having a portfolio focused on a specific sector can, therefore, be advantageous in this regard.

Another positive aspect of FHT’s current portfolio is the fact that they are well diversified geographically. As mentioned earlier, its properties are spread across nine major cities located in three different continents – Asia, Australia and Europe.

Source: Frasers Hospitality Trust Quarterly Presentations

Furthermore, as you can see from the chart above, no single country accounted for more than 50% of gross revenue (GR) or net property income (NPI) in the 2018 first quarter. Australia, which contributed to the bulk of GR, accounted for 46% of GR, followed by Singapore at 19%.

Average revenue per available room

The average revenue per available room (Ave RevPAR) is a key performance indicator of the hospitality sector. It is calculated by dividing the total revenue by the number of available rooms. By assessing the trends of the past few years, we can determine FHT’s ability to generate sales over the long-term.

Source: Frasers Hospitality Trust Annual Reports

I have compiled the Ave RevPar for FHT by location. Since 2015, FHT has managed to increase its Ave RevPar in all locations, except for the United Kingdom.

Average daily rate

Finally, the average daily rate (ADR) is the amount that a hotel charges per room. A growing ADR is an indication that the hotel has the pricing power to increase its hotel room rates, without losing its customer base.

Source: Frasers Hospitality Trust Annual Reports

FHT’s properties in Australia, Japan and Malaysia have performed well in this regard. However, ADR of the properties in Singapore fell from $304 in 2015 to $295 in 2017. This was due to the soft residential market in Singapore that has affected rents in Fraser Suites, one of its serviced residence units in Singapore. However, as the Singapore market is expected to pick up, we are likely to see the ADR in this market improve along with it.

The Foolish bottom line

FHT has a portfolio that is diversified across multiple countries and cities. So far, it has delivered strong results in terms of growing its income organically through Ave RevPar and ADR growth. However, as the hospitality landscape changes in the next few years, investors should continue to monitor the management’s ability to adapt and thrive in this dynamic hospitality scene.

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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 Jeremy Chia doesn’t own shares in any companies mentioned.