Growth Ambitions, Undemanding Valuations

• Frasers Hospitality Trust (FHT) has executed well to increase AUM and broaden its markets with new deals since its 2014 IPO. It now boasts a portfolio of nine hotels and six serviced residences in global gateway cities.
• Near term, we see stronger 3-5% RevPAR growth for its hotels in Singapore and Europe, underpinned by momentum in leisure tourism and stronger corporate demand.
• Valuations, backed by its growing portfolio of quality assets, are compelling vs peers at 7% DPU yields and 0.8x P/BV. Strong sponsorship coupled with low 34.0% gearing provides growth visibility and upside to our DPU.
• We initiate coverage with BUY and a DDM-based SGD0.80 Target Price (COE 7.9%, LTG 2.0%).

Acquisition-led Growth

Three acquisitions completed in the three years since its Jul 2014 IPO have increased FHT’s exposure to Australia and Europe. AUM from its overseas assets rose from 57% to 66% as of end-Jun 2018.

• Overseas NPI is expected to rise from 74% in FY16 to 77% in FY20E

Downside 

• Sizeable increases in hotel and SR room supply without commensurate growth in demand. 
• Deterioration in global economy, resulting in declines in RevPARs. 
• Significant volatility in FX rates could impede hedging efforts and affect DPU. 
• Sharper-than-expected rise in interest rates could increase cost of debt and hit earnings, with higher cost of capital lowering valuations. 

Source: Maybank Kim Eng Research - 14 Sep 2018