In recent months, there has been renewed market speculation regarding the potential privatization of Frasers Hospitality Trust (FHT). This follows a previous attempt in 2022, where Frasers Property Limited (FPL) proposed to take FHT private through a trust scheme of arrangement, offering S$0.70 per stapled security. The proposal narrowly missed approval, securing 74.88% of the vote, just shy of the required 75%.
The hospitality sector has faced challenges, including the COVID-19 pandemic’s impact and rising operational costs. FHT’s recent financial performance reflects these difficulties, with a 0.8% year-on-year decrease in Distribution Per Stapled Security (DPS) for the second half of its financial year ending September 30, 2024. This decline was primarily due to increased finance costs, despite higher revenue and net property income during the period.
Additionally, FHT’s Australian subsidiary, FHT Australia Trust, lost its Managed Investment Trust (MIT) status, resulting in a higher effective tax rate of 37.5%. This change is expected to reduce FHT’s distributable income by approximately S$1.3 million for the financial year 2024. The loss of MIT status was beyond the control of FHT’s managers, who are currently exploring options to mitigate the impact, including potential portfolio rebalancing.
These factors have led to discussions among investors and analysts about the possibility of FPL revisiting privatization plans to unlock value for shareholders. However, as of now, there has been no official announcement from FPL or FHT regarding a new privatization proposal.
It’s worth noting that in July 2024, Thai Beverage (ThaiBev), Southeast Asia’s largest brewer and part of the TCC Group controlled by tycoon Charoen Sirivadhanabhakdi, announced plans to divest its real estate assets in a share swap deal. This transaction involves ThaiBev transferring its 28.8% stake in Frasers Property to TCC Assets, another company owned by Charoen. While this move is aimed at streamlining ThaiBev’s focus on its core beverage and food business, it has also sparked discussions about potential strategic realignments within the TCC Group’s property holdings, including FHT.
Frasers Hospitality Trust (FHT) has recently been the subject of updated analyst evaluations. Notably:
DBS Research: On November 13, 2024, DBS downgraded FHT from a “Buy” to a “Hold” rating, adjusting the target price from S$0.62 to S$0.45. This revision reflects concerns over increased tax liabilities in Australia and anticipated impacts on distributions per unit (DPU).
Maybank Research: On November 25, 2024, Maybank maintained a “Buy” rating for FHT with a target price of S$0.48, acknowledging growth drivers but also noting challenges such as rising costs and tax implications.
Analysis of Frasers Hospitality Trust
FHT is a Singapore-based hospitality trust with a diversified portfolio of 15 assets across key cities in Asia, Australia, and Europe. As of December 24, 2024, its market capitalization is approximately S$963 million, with an enterprise value around S$1.61 billion.
Financial Metrics:
Price-to-Earnings (P/E) Ratio: Approximately 47.62, indicating a higher valuation relative to earnings.
Price-to-Book (P/B) Ratio: Around 0.77, suggesting the market price is below the book value.
Dividend Yield: Reported at 5.2%, which is lower than the sector average of 8.2%.
Recent Developments:
Taxation in Australia: FHT’s Australian subsidiary lost its Managed Investment Trust (MIT) status, leading to a higher effective tax rate of 37.5%. This change is expected to reduce distributable income by approximately S$1.3 million for FY2024.
Financial Performance: For the second half of FY2024, FHT reported a 0.8% year-on-year decrease in Distribution Per Stapled Security (DPS) to S$0.011682, primarily due to increased finance costs.
Potential Value Analysis
FHT’s diversified portfolio in prime locations offers resilience and potential for long-term growth. However, challenges such as increased taxation in Australia and rising operational costs may impact short-term profitability and distributions.
The current P/B ratio suggests that the market may be undervaluing FHT’s assets, potentially indicating an opportunity for value investors. However, the relatively high P/E ratio and lower dividend yield compared to the sector average warrant cautious consideration.
In summary, while FHT possesses strong assets and a diversified portfolio, recent financial challenges and market conditions suggest a prudent approach for potential investors, considering both the risks and the trust’s inherent strengths.
While there is market chatter about the potential privatization of Frasers Hospitality Trust, no concrete plans have been announced. Investors are advised to monitor official communications from FPL and FHT for any updates on this matter.
