Fraser Hospitality Trust

Q&ACategory: QuestionsFraser Hospitality Trust
HW asked 4 years ago

Hi PC,
I am your new students, the first video that i watched is you talking about Maple ind reit and Ascott reit. I have been travelling around for my job and usually i stay in ascott residences and i am pretty interested in it, but i also saw Fraser service apartment, which usually at a higher rental fee and better quality. So i decided to check out FHT in this circumstance. 
I came across Fraser hospitality trust which is listed in 2014 have properties in Aus, UK, Japan, Sg and Malaysia. After their IPO, they have a private placement of 150M shares to bought sofitel Australia. 
Total dividends paid in 2015 is 7.56 SGD cent, with a dilution of 150M new share issue from 1049M which is arould 14.3%
If taken the dilution which 7.56*14.3% = 6.51
6.51/78( share price at 23 May 2016) = 8.3% 
Compare it with Ascott, it has lower gearing at 38%, 8.3% dividend yield, <1 PBV. Do you think this FHT is much lucrative than Ascott reit? May i know your thoughts. What you think ascott might be better or other way round. Thanks alot !!

1 Answers
pcwong Staff answered 4 years ago

Hi Woei Chang,  
Thank you for writing in.  it is difficult to compare the HFT’s  YTD Revenue and Net Profit growth vs the previous year due to a change in the accounting period. The current 1H is from Oct 2015 – Mar 2016 (6 months) whereas the previous year\’s 1H is from Jul 2014 – Mar 2015 (9 months).
As a REIT’s distribution is dependent on its rental income, the REIT must demonstrate to have increase in both Revenue and/or Net profit vs the previous year’s To have a level playing field, lets measure 1H 2016 vs (1H 2015 x 2)/3 so that we can see how the Revenue and Net Profit fare.
In so doing we have HFT’s Revenue growing by 18.1% (58,401 vs 49,464) and Adjusted Net Profit (less gain fair value of properties) grew by 85.4 % (31,449 vs 16,994). So HFT met the first requirement in Revenue and Net Profit growth quite spectacularly. 
Its current ratio is 3.0, while its debt to equity ratio is 0.74, both of which is within our KPIs. Its gearing is 39% slightly higher than Ascott’s 38%. You need to add the short term borrowings from the Current Liabilities.
So far in terms of performance, yes, HFT is better than Ascott REIT. So in view of the dilution, at 8.3% yield, yes it is a good BUY. You made the right call. The yield could be higher than than 8.3% if its Revenue and Net Profit continue to exceed expectations.
However, being in the hospitality industry in the current economic climate does have it own headwinds but the risk is low at the current price level. My reason for selecting Ascott REIT was due to the strength of its sponsor which is Capitaland one of the largest conglomerates in Singapore, which could provide the financial backing in the event the global economy turns sour. Still Frasers Centrepoint is no small sponsor either.
You have certainly grasped the key concepts in the analysis.
pc      
Link: http://frasershospitality.listedcompany.com/newsroom/20160429_072745_ACV_Y302VLEG1L701CRL.1.pdf    

HW replied 4 years ago

Hi PC,

Great details that you have in such a short time. I wasn’t realise until you stated that the period of comparison is different. Thanks for the valuable input. Currently I am going through all your modules. Happy to catch up and learn more experience from you.

Regards,
Horng Woei