Frasers Property to privatise FHT at S$0.70 per stapled security 

FRASERS Property Hospitality Trust Holdings, a wholly-owned subsidiary of Frasers Property , is proposing to privatise Frasers Hospitality Trust (FHT) through a trust scheme of arrangement.

The privatisation will shave over S$1.3 billion worth of value from the local bourse.

The offeror is proposing to acquire all of FHT’s stapled securities – other than those held by TCC Group Investments and Frasers Property and its subsidiaries – at a scheme consideration of S$0.70 each in cash, it said in a bourse filing on Monday (Jun 13).

The scheme consideration represents a premium of 43.8 per cent over the 12-month volume-weighted average price per stapled security up to and including Apr 7, the last full trading day prior to the announcement of its strategic review, and a premium of 16.7 per cent over recent analyst consensus of the counter’s target price in 2022.

It also implies a price to net asset value (NAV) multiple of 1.07 times, which is above historical averages of FHT’s trading multiples since its initial public offering (IPO), current trading multiples of other listed Singapore hospitality trusts, and precedent Singapore real estate investment trust (Reit) privatisations.

For investors that have stayed with FHT from its inception in 2014, however, the scheme consideration represents a steep 20.5 per cent drop from its IPO price of S$0.88.

In a press briefing accompanying the announcement, Eu Chin Fen, chief executive of FHT’s managers, noted that the Reit has achieved a total return of 22.7 per cent since its IPO.

“For stapled securityholders who have invested in FHT IPO and subscribed for our rights (issues), this is actually a higher return than 2 out of 3 of FHT peers over the same period,” Eu said. “Our total return is not great but is not much worse off than our peers.”

The managers noted that from Jul 14, 2014, to Jun 8, 2022, hospitality peer Ascott Residence Trust has recorded a total return of 48.9 per cent, while CDL Hospitality Trusts and Far East Hospitality Trust saw total returns of 20.7 per cent and 7.9 per cent, respectively.

The managers of FHT said it faced obstacles in growing the hospitality Reit’s distribution per stapled security and net asset value amid muted growth within the hospitality sectors of the markets FHT operates in, as well as the strengthening of the Singapore dollar against FHT’s operational currencies.

Portfolio valuation gains, it said, had been offset by foreign exchange losses, with operational currencies weakening by some 10 per cent since FHT’s IPO.

“When we started out, we definitely had aspirations to grow… to be a meaningful player in the market,” Eu said. “We tried our best, we did our best and we stayed committed throughout the journey… (But) operating markets where most of our assets are in have been challenging and growth has really been muted.”

More recently, Eu said the Russia-Ukraine war has compounded existing pandemic-induced supply chain disruptions, which has led to increases in commodity, food and energy prices.

This, in turn, has “triggered very high inflation”, she added.

“All this increase in costs means that interest rates will continue to rise, and this will add to heightened recessionary pressure,” Eu said. “What this means for our hospitality business, essentially, is that it will add both topline and bottomline pressures to our business.”

“Again, further strengthening of the Singapore dollar could potentially limit any revelation gains and distribution per stapled security growth,” she added. “Amid the uncertainties, it is likely that the Singapore dollar will continue to strengthen, and this does not bode well for our operating performance and NAV.”

Further, the managers of FHT said its small size as compared to its peers has limited its ability to reap the benefits of a continued listing.

“If we were to talk about growing ourselves to be meaningful to be included in an index, this will need us to grow by a float size of S$1.8 billion, which will be a challenge for us,” Eu said. “What this means is that we will likely continue to struggle with low liquidity.”

She added: “We believe that the proposed trust scheme is the best option and represents a credible opportunity for our stapled securityholders to realise their investments at an attractive valuation.”

Loo Choo Leong, group chief financial officer of Frasers Property – the sponsor of FHT – said the transaction will allow the group to increase its investment in hospitality assets in locations it is already familiar with.

“Hospitality remains core to our businesses,” Loo said.

“We are cognisant of the prevailing factors that may negatively impact the recovery trajectory of the hospitality sector and, consequently, the pre-Covid-19 valuation of FHT assets,” he added. “Having said that, as with all real estate sectors, there are up cycles and down cycles. Frasers Property takes a long-term view of the returns from our investments, and we remain cautiously optimistic about the long-term growth potential of the hospitality sector.”

The independent directors of FHT noted that the scheme is the best option given that it represents a credible offer from a financial perspective, offers strong deal certainty for stapled securityholders in terms of timing and execution, and allows stapled securityholders to realise their investment at an attractive valuation immediately.

On Apr 8, the managers of FHT announced it was undergoing a strategic review to enhance and unlock value for its stapled securityholders. It had explored options including continuing FHT’s existing strategy, expansion of the existing FHT platform via acquisitions or mergers, strategic sale of all or select assets, and the sale of the FHT platform to a third-party or the sponsor.

The scheme will require the necessary regulatory and court approvals, and is subject to approval by stapled securityholders.

DBS is the financial adviser to the FHT managers for the acquisition and the scheme. Meanwhile, Merrill Lynch (Singapore) is the lead financial adviser and OCBC is the financial adviser to the offeror.

Stapled securities of FHT jumped 4.6 per cent or S$0.03 higher to close at S$0.69 on Monday, following the announcement, while shares of Frasers Property closed 1.8 per cent or S$0.02 lower at S$1.08.