Frasers Hospitality Trust’s target price slashed following rights issue

SINGAPORE (Sept 23): UOB Kay Hian is keeping Frasers Hospitality Trust on “buy” but has cut its target price to 81 Singaporean cents, from S$1.01 previously, to factor in a “heightened risk profile”.

The research house says it has adjusted its model to factor in FHT’s recently-announced 32 for 100 rights issue to raise S$266.3 million (RM808 million) to finance the acquisition of Novotel Melbourne.

“We lower our FY16F DPU estimate by 3% and that for FY17 and FY18 by 12% to 13%, after factoring in the dilution from the acquisition,” says UOB lead analyst Derek Chang in a Thursday report.

But he adds that the team continues to see value in FHT.

According to Chang, FHT’s management has alluded to a free float target of S$700 million, a 30.4% increase from the post-rights issue free float of S$536.5 million.

“Should management reach its free float target, FHT could see its trading performance improve from the increased liquidity,” Chang says.

The Novotel Melbourne acquisition lowers FHT’s exposure to the post Brexit UK market as well as the declining Singapore market, Chang points out.

FHT has not ruled out a potential expansion of its Australian footprint, which now accounts for 28.5% of its portfolio value, from 20% previously. According to CBRE, hotel RevPAR in Australia is forecast to grow by 3% per annum.

In addition, Chang believes there is scope for further contribution from the newly-acquired Novotel Melbourne.

“Fresh from the recent refurbishment of Novotel Melbourne’s rooms and conference/meeting rooms, and taking its high occupancy of 90% into account, management has expressed confidence in potentially seeing an uplift in room rates,” Chang says.

Units of Frasers Hospitality Trust closed 0.7% higher at 71 Singaporean cents on Thursday. — theedgemarkets.com.sg

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