Stock.i1: Fraser Hospitality Trust Post Result Announcement

Fraser Hospitality Trust has released its FY2020 results on 30th October 2020. In this article, we will be looking at the highlights of their result announcement and the management outlook for the Trust.

About Fraser Hospitality Trust

Fraser Hospitality Trust (“FHT”) is the first global hotel and serviced residence trust listed in Singapore on 14th July 2014. It is established with the principal strategy of investing globally, on a long-term basis, in income-producing real estate assets used primarily for hospitality purposes.

FHT has a diversified portfolio of 15 quality assets, which are in prime locations across 9 key cities in Asia, Australia and Europe. With a combined appraised value of $2.33 billion, these 9 hotels and 6 serviced residences are Novotel Melbourne on Collins, Novotel Sydney Darling Square, Sofitel Sydney Wentworth, Fraser Suites Sydney, InterContinental Singapore, Fraser Suites Singapore, ibis Styles London Gloucester Road, Park International London, Fraser Suites Edinburgh, Fraser Suites Glasgow, Fraser Suites Queens Gate, Fraser Place Canary Wharf, ANA Crowne Plaza Kobe, The Westin Kuala Lumpur and Maritim Hotel Dresden. Collectively, they have a total of 3,913 rooms comprising 3,071 hotel rooms and 842 serviced residence units.

FY2020 Result Highlights

For FY2020, FHT has reported a year-on-year decline of 40.9% and 46.4% in Gross Revenue and Net Property Income respectively. The lower decline, in comparison to 2H FY2020, was due to better business performance in the first quarter of FY2020 which partially mitigated the significant impact of the COVID-19 outbreak.

Under the master lease structure, FHT was entitled to the contractual minimum rental income when some of the properties temporarily suspended their operations and/or operated below the optimal performance level. Thus, this provides downside protection to FHT during the COVID-19 outbreak.

Despite the substantial drop in Income Available for Distribution, FHT continues to payout 90% of its available distribution for FY2020 to all unitholders. The total distribution per stapled security amounts to 1.39 cents, which is a year-on-year drop of 68.3%.

FHT’s Portfolio Occupancy by Country

FHT's overall Portfolio Occupancy rate has suffered a big drop in the month of February and March 2020 as a result of a worldwide lockdown and the suspension of air travel due to the outbreak of COVID-19. Ever since then, different countries have witnessed a different pace of recovery in terms of the occupancy rate.

For its Australia segment, the occupancy rate has hit a low of 26.8% in August due to the declaration of a state of disaster in Victoria. However, it has since recovered back to 37.2% in the month of September as the COVID-19 pandemic has subsided in Australia.

In the UK, after suspending operations for the entire third quarter of FY2020 due to a government-imposed mandatory closure, all UK properties have reopened in the fourth quarter, except for ibis Styles London Gloucester Road (“ISLG”). The overall occupancy rate has since recovered to above 30%, but still way below the rates achieved before the pandemic.

For FHT’s Portfolio in Malaysia, The Westin Kuala Lumpur (“TWKL”) has temporarily closed since May 2020 due to COVID-19. However, due to the recent spike in COVID-19 cases, a conditional recovery movement order has been implemented on 14th October 2020 for 2 weeks in Kuala Lumpur, Selangor and Putrajaya. This has been extended by another 2 weeks to 9th November 2020.

FHT’s Portfolio Valuation

In terms of FHT’s portfolio valuation, the largest contribution comes from Singapore with properties such as InterContinental Singapore and Fraser Suites Singapore. The total appraised value as of 30 September amounts to S$798 million, which is a dip of 4.7% compared to a year ago.

The next largest contribution comes from Australia, which has Novotel Melbourne on Collins, Novotel Sydney Darling Square, Sofitel Sydney Wentworth, Fraser Suites Sydney under the Trust. Due to a favourable exchange rate, the total valuation came in at S$709.9 million, which is a slight increase of 0.1% year-on-year. However, in terms of the local currency, the Australian Dollar, the valuation of its Australian segment suffered a drop of 4.7% year-on-year.

Overall, FHT’s total portfolio value suffered a year-on-year drop of 3.5% to S$2.24 billion as a result of the COVID-19 pandemic.

Capital Management for FHT

As of 30 September 2020, FHT’s aggregate gearing ratio stands at 37.7%, which is below MAS’s stipulated gearing ratio limit of 50%. For FHT’s debt maturity profile, there are no refinancing needs in 2020 and 2021 and the next financing hurdle will be in 2022 where S$150.7 million worth of debt will be due for repayment.

This will allow the Trust to be in a stable position in the short run without the burden of refinancing any existing debts, given the tough operating environment.

FHT’s effective cost of borrowing is also at a low of 2.3% and the Trust has hedged close to 75% of its borrowings on fixed interest rates to ensure that the Trust does not see a spike in finance cost in the event of a rise in interest rate.

However, due to the lacklustre financial performance, FHT’s interest coverage ratio has dropped to a low of 2.3 times, which is below MAS’s stipulated minimum interest coverage ratio of 2.5 times.

Management Outlook

Mr. Colin Low, Chief Executive Officer of FHT said, “FY2020 has been the most challenging year in FHT’s history to date. Our financial performance has been severely affected by exceptional lockdown measures and border closures arising from the worldwide spread of the pandemic. We have been quick to respond, together with our property operators, by taking proactive measures to contain costs and conserve cash flow, and at the same time pursue alternative revenue opportunities by securing isolation business from the local government agencies.

While we are encouraged by the progressive easing of border controls and lockdown measures in the countries where we have a presence, we anticipate those countries with sizeable domestic travel markets to recover faster than those reliant on international travel. The risk of a resurgence of COVID-19, however, continues to weigh on our portfolio performance in the near term.”

With no debts maturing in 2020 and 2021 and a relatively safe level of aggregate leverage, FHT is in a good position to ride through the COVID-19 pandemic stronger.