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DBS Equity Research expects Frasers Hospitality Trust’s (FHT) distribution per unit (DPU) to fall by 11 to 13 percent for FY2019/2020, reported Singapore Business Review.
This comes on the back of an anticipated drop in revenue per average room (RevPAR) in its Sydney portfolio and the weaker-than-expected results in the second quarter.
FHT saw its net property income decline 9.1 percent year-on-year to $25.21 million in Q2. Revenue also fell 7.6 percent year-on-year to $34.62 million.
The trust’s earnings were adversely affected by the foreign exchange impact on functional currencies as well as the weaker performance of its Malaysia, Japan and Australia portfolios.
With this, FHT reportedly mulls disposing its Sofitel Wentworth property in Sydney above the property’s current book value, while possessing hotels with capacity to realise value in the medium term, via rebranding or redevelopment.
DBS analyst Mervin Song expects these potential value add actions to provide support to the trust’s share price as it handles near-term challenges, especially in Australia.
“We understand demand from Australian domestic corporates has been weak and an expected increase in supply could potentially result in continued soft RevPAR performance for FHT’s Sydney properties,” he said.
“Partially offsetting this is a stronger contribution from its Novotel Melbourne property as it benefits from repricing and more active management of the room inventory.”
For the medium term, however, DBS expects FHT’s Sydney properties to provide a strong contribution as Darling Harbour precinct’s rejuvenation should support demand for the trust’s properties there.
FHT’s net property income, which sources almost 25 percent of its earnings from Singapore, may also benefit from a recovery in RevPar in the next two to three years as new room supply is expected to moderate from 2018 onwards.
In the near term, however, Song warned that FHT’s Singapore operations could be affected by increased competition in the serviced residence segment as housing units may now be rented out for a minimum period of three months compared to six months previously, while new hotels near Intercontinental Singapore also pose a threat to the business.
Fiona Ho, Digital Content Manager at PropertyGuru, edited this story. To contact her about this or other stories, email fiona@propertyguru.com.sg
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