(Image courtesy of InterContinental Singapore)

Frasers Hospitality Trust reports DPS of 1.1655 cents for the fourth quarter

Operating results for the quarter improve year-on-year

Summary of Results

SINGAPORE, 30 OCTOBER 2019

Frasers Hospitality Trust (“FHT”), a stapled group comprising Frasers Hospitality Real Estate Investment Trust (“FH-REIT”) and Frasers Hospitality Business Trust (“FH-BT”), today announced that for the fourth quarter ended 30 September 2019 (“4Q FY2019”), its GR and NPI grew 2.1% and 2.3% year-on-year (“yoy”) to S$39.5 million and S$30.0 million respectively.

The improvements were attributed to better overall portfolio performance which was partially offset by foreign exchange impact arising largely from the weaker Australian dollar and British pound.

Notwithstanding the higher NPI, DI declined 2.9% yoy to S$22.3 million as a write-back of tax provision was included in the DI for 4Q FY2018. DPS was 1.1655 cents, 4.1% lower than a year ago.

Mr Colin Low, Chief Executive Officer of the Managers1 said, “In this quarter, all country portfolios, except Australia, achieved better yoy performance.”

“The Singapore portfolio recorded higher room rates at higher occupancy levels of above 90%, while the UK portfolio continued to benefit from the weaker pound which led to all properties recording healthy gains in revenue per available room (“RevPAR”). The Japan portfolio reported higher room and food and beverage (“F&B”) revenue, boosted by events including the Rugby World Cup 2019,” he added.

“However, these were partially offset by the Australia portfolio which continued to report weaker performance due to the challenging trading environment in Sydney and Melbourne. We continue to work closely with our operators to drive revenue growth and operational efficiency,” said Mr Low.

For the financial year ended 30 September 2019, FHT’s GR and NPI declined yoy by 3.9% and 4.6% respectively to S$149.8 million and S$111.7 million. The declines were due mainly to weaker performances of the Australia and Malaysia portfolios which were partially mitigated by better performances of the Singapore and UK portfolios. Foreign exchange impact also contributed approximately 80% and 60% of the declines in GR and NPI respectively. With a lower NPI and the absence of the write-back of tax provision which took place in 4Q FY2018, DI decreased 6.1% yoy to S$83.9 million while DPS was 7.3% lower at 4.4129 cents.

Review of 4Q FY2019 Portfolio Performance

In 4Q FY2019, the Australia portfolio’s gross operating revenue (“GOR”) and gross operating profit (“GOP”) decreased yoy by 1.6% and 2.8% respectively. GOP declined more than GOR due to higher operating costs. The portfolio RevPAR was 3.1% lower yoy on the back of lower average daily rate (“ADR”) and occupancy. The trading environment in Sydney and Melbourne has remained challenging. Increased room supply has affected room revenue, with all properties in the Australia portfolio reporting lower RevPAR.

The Singapore portfolio registered a 5.1% increase in GOR and an 11.1% increase in GOP yoy. The better GOP performance was attributed to increased operational efficiency and cost savings at both properties. Higher ADR and occupancy saw the portfolio RevPAR improve by 4.9% yoy. Both properties recorded occupancy levels of above 90%, driven by stronger leisure and corporate demand in the transient segment (independent travellers on short stay).

The UK portfolio’s GOR and GOP rose yoy by 8.6% and 8.2% respectively. The portfolio RevPAR was 8.5% above the levels in 4Q FY2018. All properties in the UK reported RevPAR growth and gains in market share, leading to the higher GOR.

ANA Crowne Plaza Kobe’s GOR increased 9.0% yoy due to higher room and F&B revenue. Its increase in GOP was steeper, by 21.4%, due to continual efforts in driving operational efficiency. Room and F&B revenue were boosted by events including the Rugby World Cup 2019 as the hotel was hosting selected teams and their fan clubs. The hotel also recovered from a low base as it was affected by two typhoons and the closure of its banquet space for the replacement of partition walls in 4Q FY2018. During the quarter, the hotel gained market share and saw its RevPAR improve by 6.0% on the back of higher ADR.

The Westin Kuala Lumpur’s GOR and GOP increased yoy by 7.9% and 13.7% respectively, mainly driven by higher revenue from rooms and F&B outlets. The hotel’s RevPAR rose 4.8% yoy on the back of higher occupancy. In terms of RevPAR growth, the hotel has continued to outperform its peers and the market in this quarter.

Portfolio Valuation

As at 30 September 2019, FHT’s investment portfolio was valued at S$2.33 billion by independent valuers, down from S$2.40 billion a year ago.

In local currency terms, the valuations of all country portfolios were higher yoy, except for Australia, while the Malaysia portfolio’s valuation was unchanged. Valuation for the Australia portfolio declined due to weaker performance on the back of challenging market conditions in Sydney and Melbourne.

In Singapore dollar terms, the total portfolio valuation declined 2.9% due to the depreciation of all functional currencies, except for the Japanese yen.

Capital Management

FHT successfully refinanced maturing loan and bonds of S$385.8 million in July 2019. Consequently, the financial position of FHT has strengthened, from net current liabilities of S$337.8 million as at 30 September 2018 to net current assets of S$54.4 million as at 30 September 2019, while the weighted average debt to maturity was extended from 2.91 years to 4.63 years.

As at 30 September 2019, FHT’s total borrowings were S$854.2 million, with gearing at 35.1%. The proportion of fixed-rate borrowings to total borrowings was 68.9% and the effective cost of borrowing was 2.5% per annum. Interest cover remained healthy at 4.7 times and net asset value per Stapled Security was S$0.73.

Said Mr Low, “With a global portfolio of 15 quality assets which are in prime locations of gateway cities, there are opportunities to rebalance our portfolio and create value for our stapled securityholders.”

“Coupled with our debt headroom, we continue to have the financial flexibility to pursue assets with better returns by acquiring from the right of first refusal pipeline from our sponsor, Frasers Property, or from third parties,” he added.

Market Outlook

For the first 7 months of 2019, Tourism Australia reported a yoy increase of 2.2% in international arrivals to 5.3 million. While hotel visitor nights have grown nationally, the growth has been offset by new supply. Thus, occupancy rates have fallen and operators have responded by dropping rates. In Sydney, RevPAR has been declining on the back of lower occupancy and ADR. With about 2,000 rooms currently under construction and a further 4,000 rooms having received development approval, the potential increase in overall stock levels would limit the ability of operators to increase rates. In Melbourne, over 5,000 rooms are expected to be added over the next few years. The new supply is substantial for a market that has already seen limited growth over the last few years because of additions.

For the period from January to August 2019, the Singapore Tourism Board recorded a 1.9% yoy growth in international visitor arrivals to 12.9 million. Overall, the outlook for Singapore’s tourism sector is positive and the hotel market is expected to benefit from the robust supply and demand fundamentals in the short to medium term. By end-2019, the total existing hotel supply is expected to increase by 2.0% yoy, or approximately 1,400 rooms. Supply is anticipated to remain limited for the next 3 years, growing at a compound annual growth rate of 0.7% from end-2019 to end-2022. In the medium to longer term, the government’s infrastructure investments and new tourism initiatives including the expansion of Changi Airport, a new eco-tourism hub in Mandai, a new integrated tourism development at Jurong Lake District and new attractions at the Greater Southern Waterfront, are expected to continue supporting Singapore as an attractive destination for tourism.

According to VisitBritain, the UK welcomed 21.8 million overseas visitors in the first 7 months of 2019, unchanged yoy. Business visits were 1.0% below levels seen in 2018 but holiday visits were up 2.0% yoy. London has weathered the Brexit storm and proven its resilience, achieving an impressive trading performance despite the quantum of new hotels opening. However, the continued economic and political uncertainty paints an unclear outlook for UK tourism.

For the first 9 months of 2019, Japan National Tourism Organization reported a yoy growth of 4.0% in foreign visitors to 24.4 million. The Rugby World Cup 2019, which runs from 20 September to 2 November, is set to boost visitors during a shoulder season while the 2020 Tokyo Olympics is expected to be the tailwind that drives inbound visitors to reach the 2020 goal of 40.0 million inbound tourists. Hotel supply, on the other hand, is expected to soften from 2020 which should provide some breathing room for Hoteliers. For the period from January to July 2019, Tourism Malaysia reported a 4.9% growth in tourist arrivals to 13.4 million, with Singapore, Indonesia and China being the biggest contributors of tourist arrivals to Malaysia. For the full year, Tourism Malaysia aims to achieve tourist arrivals of 28.1 million. In Kuala Lumpur, upscale and luxury hotels continue to dominate incoming supply to the market for 2019 and strong competition has led to lower ADR. Hotel trading performance is expected to remain subdued in the near term in light of the ongoing supply glut. However, new supply may be partially absorbed by continued visitor growth.

For the first 8 months of 2019, the Federal Statistical Office of Germany recorded a yoy increase of 3.8% in the number of overnight stays by domestic and foreign visitors. In Dresden, the total number of domestic and foreign visitors for the first 7 months of 2019 declined marginally by 0.1% yoy. Dresden, the capital city of the Free State of Saxony, continues to grow its pipeline of MICE events for 2020 including Börsentag Tag Dresden (Banking and Finance Fair), HAUS (Construction and Energy Fair), Innovation Forum for Automation, International Laser Symposium, Hematology and Oncology Conference, and International Conference on Metal-Organic Frameworks and Open Framework Compounds.

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