Fraser Centrepoint is now looking to list a new trust, Fraser Hospitality. After having retail and commercial, it is a matter of time before they come with a hospitality one. The timing couldn’t be better as the REITs have largely recovered from an initial shock when the Fed started cutting back on QE.
The initial portfolio will consist of 12 properties, of which 6 are hotels and 6 are serviced residences. It is similar to Ascott REIT in the sense that it has both hotels and serviced residences and also has an international profile. However, Fraser Hospitality is not as diversified as Ascott in terms of geographical regions and it does not have as many properties.
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Based on the issue price of $0.88, the yield is expected to be 7% for FY 2015. Now let’s compare that to other currently listed hospitality trusts.
As you can see from the chart, 7.0% yield is actually around the average. In fact, OUE Hospitality Trust looks really attractive at 8.0% yield. However, OUE Hospitality Trust does have concentration risks as it only has Mandarin Orchard and Mandarin Gallery in it’s portfolio, which is really the same building. To be honest, Mandarin Gallery retail space isn’t that fantastic as well as traffic volume is generally low. However, OUE Hospitality does have the rights to acquire Crown Plaza, Changi Airport.
Ascendas Hospitality Trust is another trust with 8.0% yield. So does that mean they are more attractive? Not necessarily so, Ascendas Hospitality Trust portfolio looks like a bunch of unrelated hotels put together for the sake of just creating a REIT because they can. The hotels are all over the place, without an anchor property. Ascendas should probably just stick to what they know best, which is industrial.
Ascott is a good close comparison in terms of portfolio and yield is similar. However, Ascott REIT has a slightly lower leverage of 35.9%. As you can see from the cap table below, leverage of of Fraser Hospitality is at 41.7%. In this aspect, Ascott REIT actually looks more attractive.
FHT Capitalization Table
FHT Pro Forma Income Statement
Looking at the pro forma income statement, the trend of increasing revenue and distributable income is always a good sign.
FHT Projected Income Statement
Revenue Per Available Room (RevPAR) Chart
RevPAR for most of the hotels and residences look stable in general with an upward trend. Occupancy has also been inching up slowly.
One of the key investment ideas behind REITs is always ability to improve yield on assets through Asset Enhancement Initiatives (AEI). For FHT, they already have planned refurbishment for Intercontinental Singapore, Fraser Place Canary Wharf, Novotel Darling Harbor and ANA Crowne Plaza Kobe.
Overall in general, Frasers Hospitality Trust looks like a good trust with attractive yields and diversified portfolio. Ascott REIT is a good alternative as well and in some ways look more attractive than Frasers Hospitality Trust on a similar portfolio. OUE Hospitality Trust is also very attractive in terms of yield and also has a very prime asset Marina Mandarin. Assuming the IPO garners interest in hospitality, all 3 REITs are worth looking at.
About the Author
Calvin Yeo, CFA, CFP is the Managing Director of Doctor Wealth Pte Ltd (www.drwealth.com), which is is revolutionizing the financial advisory industry by building an online platform to provide high quality and comprehensive financial advice for free.