Excerpts from DBS report
Analyst: Derek Tan
Prime candidate for privatisation
|Upgrade to BUY; revised TP of S$0.65. Frasers Hospitality Trust's (FHT) current price/book (P/Bk) of 0.7x is beyond the -2 standard deviation (S.D) level, and a steal compared to its historical mean of 0.92x.
With replacement cost of hotels trending higher over the years, and attractive valuations of FHT’s portfolio, sponsor Frasers Group may look to privatise the REIT to realise the underlying value of the individual assets in the longer term.
Our new target price of S$0.65 implies a target P/Bk of 0.9x (back to historical mean), and a revised FY21F yield of 7.2% at the current share price.
|Where we differ: Buyout opportunity at current levels.|
The sponsor’s 62% stake in FHT stands as the highest across the sector, with FHT a prime candidate for privatisation at current levels.
The implied valuation of S$910k/room for quality assets Intercontinental Singapore and Fraser Suites Singapore trends below development costs/room, especially given the superior locations of the two assets.
We estimate that a buyout opportunity will cost S$444m at a 25% premium to current share price to gain full control of the hotel portfolio, below book value of S$523m.
|Temporary closure in Australia and UK.|
FHT has temporarily closed all the food and beverage outlets in its hotels in Sydney and Melbourne and will be progressively closing UK assets also on a temporary basis, as tighter measures are enforced by the Australian and UK government to prevent the spread of COVID19.
Our revised FY20F DPU of 1.83 Scts and yield of 3.7% constitute primarily of fixed rent (66%) from FHT’s 15 master leases.”
We adjust our RevPAR forecasts in line with the rest of the sector, with normalisation expected to occur only in FY22.
Revised RevPAR estimates will be 47%/88% of FY19 levels for FY20/FY21.
Valuation: We revise our RevPAR forecast and beta estimates to derive a TP of S$0.65. Upgrade to BUY.
Key Risks to Our View: Slower recovery in FY21 as COVID-19 protracts.
Full report on pages 26-31 here.