3 Concerning Trends With Frasers Hospitality Trust

Frasers Hospitality Trust (SGX: ACV) is a stapled trust with a focus on owning hotels and serviced residences around the world. It currently has a total of 15 assets in nine cities in Asia, Australia, and Europe.

Since its IPO in 2014, Frasers Hospitality Trust has added three new properties to its portfolio, including the most recent purchase of Novotel Melbourne on Collins on October 2016.

Consequently, the trust’s revenue and net property income have increased. Income available for distribution has likewise risen in the process. But crucially, its distributions per stapled security has declined. This is largely due to new stapled securities being issued by the trust to raise funds for the purchase, leading to a dilution of investors’ interests. The net overall effect for stapled security holders, in terms of distributions received, is thus negative.

With this in mind, I thought it would be useful to evaluate three performance metrics of the trust to see how it has fared since its IPO.

Net property income per stapled security

As mentioned earlier, Frasers Hospitality Trust has managed to increase its net property income (NPI) over the years. For FY2017 (financial year ended 30 September 2017), the trust increased its NPI to S$120.2 million from S$104.2 million in FY2016. But, the total unit base increased at an even faster rate from 1.38 billion units at the end of FY2016 to 1.85 billion at the end of FY2017. As such, the trust’s NPI per unit decreased from 7.7 cents to 5.8 cents.

Distributions per stapled security

Frasers Hospitality Trust’s distributions per stapled security (DPS) fell from 7.56 cents in FY2015 to 5.05 cents in FY2017. Some of this was due to a one-off revaluation of the trust’s property portfolio in FY2015, and the fact that the fiscal year included three extra months. But, even when we compare FY2017 against FY2016, which did not have any of these one-off considerations, the trust’s DPS declined by 3.5%.

Net asset value per stapled security

The net asset value (NAV) per stapled security is a metric used to assess the actual book value of each unit. Frasers Hospitality Trust’s NAV per stapled security has declined over its last three financial years. Once again this is mostly due to an enlarged unit base after a rights issue.

The NAV for FY2017 was 81.6 cents per stapled security, down from 86.4 cents in FY2015. The decline in the NAV per stapled security was due to the trust issuing new stapled securities at just 60 cents, which was more than a 20% discount to its previous NAV per stapled security.

The Foolish bottom line

The enlarged stapled security base has had a dilutive effect on its investors’ interests. Consequently. all the three important metrics for the trust – the NPI per stapled security, distribution per stapled security, and NAV per stapled security – have declined over the past three years. Investors should continue to monitor these metrics to see if the trust can improve on its performance in the future.

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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.