Frasers Hospitality Trust's DPS down on enlarged stapled security base

EVEN as Frasers Hospitality Trust's (FHT) distribution income grew in the first quarter of FY2017, it posted a fall in distribution per stapled security (DPS) due to an enlarged stapled security base following recent rights issue.

DPS in the three months as at end December 2016 was down 18.9 per cent year-on-year to 1.3258 Singapore cents, after the number of stapled securities in FHT rose to 1,841.2 million.

Distribution income for the quarter was up 3.1 per cent year-on-year to S$24.4 million, boosted by the addition of Novotel Melbourne on Collins and Maritim Hotel Dresden, as well as better showing from the Sydney properties and ANA Crowne Plaza Kobe. But these were partially offset by the soft performance of Singapore, United Kingdom and Malaysia properties, the trust said on Thursday.

Correspondingly, revenue in Q1 went up 26.1 per cent to S$39.6 million and net property income (NPI) climbed 15.9 per cent to S$30.5 million.

NPI margin slid 6.7 percentage points to 77.1 per cent.

Said the trust: "As Novotel Melbourne on Collins was acquired with no external master lease, its NPI margin, which is computed based on NPI over the hotel's gross operating revenue, is lower as compared to the NPI margin of master leased properties which is computed based on gross revenue. As a result, FHT's NPI margin was lower year on year."

As at end December 2016, FHT's total debt was S$792.8 million, with gearing at 33.7 per cent and the weighted average years to maturity at 2.09 years.

The proportion of fixed-rate debt was 87.8 per cent while the effective cost of debt was 2.6 per cent per annum.

Interest cover was 4.93 times and net asset value per stapled security was 74.79 cents, the trust added.

Eu Chin Fen, chief executive officer of the manager, noted that the Q1 FY2017 results have exceeded forecast.

"The acquisition of Novotel Melbourne on Collins has added income contribution from Melbourne which is a growing market, and enabled us to further diversify our earnings base. With a stronger balance sheet and a lower gearing at 33.7 per cent, we are now in a better position to pursue growth opportunities through asset enhancement initiatives and value creating acquisitions."

The trust said in its outlook that demand for its Australian properties is expected to remain firm, but soft corporate demand, greater supply of new rooms and tougher regional competition are expected to weigh on the hospitality sector in Singapore.

And while Brexit and the subsequent currency fluctuations have enhanced the UK's attractiveness to international tourists, "the outlook for 2017 is less transparent due to the knock-on economic effects that the invoking of Article 50 could have on the market". But the outlook for Edinburgh and Glasgow is expected to remain positive given the rising confidence in the Scottish economy and growing tourism demand in both cities, the trust said.

Over in Japan, the tourism market is likely to be supported by the weaker currency in the short term and this tends to deliver benefits for the hotel sector.

Meanwhile, the Malaysian government has moved to attract Chinese tourists, but Kuala Lumpur - a predominantly corporate market with strong weekday business - could face oversupply in the short to medium term as a significant supply of new hotel rooms and serviced apartments is expected to come on stream till 2020.

The trust also noted that visitors to Dresden, Germany, dipped marginally from January to October 2016. But it said the capital city of the Free State of Saxony continues to enjoy a growing pipeline of MICE events for 2017, including the International Symposium Additive Manufacturing, International Conference on the European Energy Market and Cryogenics Conferences.

FHT is a stapled group comprising Frasers Hospitality Real Estate Investment trust and Frasers Hospitality Business Trust.