Frasers Hospitality Trust: Acquisitions will face high bar

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Frasers Hospitality Trust plans to focus on targeted asset enhancement initiatives (AEIs) for growth, with any acquisitions facing a high bar, the REIT said Friday in answers to unitholders’ questions ahead of its upcoming annual general meeting (AGM). 

“FHT has a quality portfolio of hospitality assets located in key gateway cities which are in areas with strong demand drivers, thereby enhancing the ability for income growth in the long term. Hence, the managers remain focused on growing the quality portfolio organically through targeted asset enhancement initiatives to rejuvenate and enhance the competitiveness of the assets,” the trust said in a filing to SGX.

The trust said it engaged in “active asset management strategies” to offset the impact of the Covid-19 pandemic, including working with governments to secure quarantine business, utilising spaces for non-room revenue generation as permitted locally, and pivoting to domestic staycation, as permitted locally.

However, acquisitions aren’t fully off the table, the trust noted, saying that despite the pandemic, it is still on the lookout. But any deals face a high bar. 

High bar on acquisitions

“Any opportunities, including M&As, that the managers pursue will have to be compelling and strategic, with investment decisions weighed carefully against funding options available, market conditions for equity fundraising and the cost of equity,” Frasers Hospitality Trust said. 

“The managers will continue the disciplined approach to target major gateway cities with strong long-term macroeconomic fundamentals and superior micro-locations,” the trust added.

The trust said its sponsor, Frasers Property, may consider injecting assets into FHT, but any acquisitions will need to be accretive, aligned to the trust’s long-term strategy and financially viable, as well as under conducive market conditions for raising equity financing. 

FHT has been granted the right of first refusal (ROFR) to a pipeline of hospitality assets owned by TCC Group, which is controlled by Charoen Sirivadhanabhakdi and Khunying Wanna Sirivadhanabhakdi, the filing said.

Cutting debt levels

FHT said it planned to pare its existing borrowings, using the net proceeds from the divestment of Sofitel Sydney Wentworth. The trust said in October it would sell the property for A$315 million. 

Borrowings on floating interest rates will be targeted for repayment, to protect against potential rate hikes ahead, FHT said.

“The enhanced debt headroom post divestment would help fund future acquisitions when the opportunity arises. This may include opportunities in better yielding Europe assets to create a more diversified and well-balanced portfolio,” FHT said, adding Japan is also a target market. 

At end-September 2021, the trust’s borrowings were at S$991.2 million, up from S$889.4 million a year earlier, although its average interest rate fell to 2.0 percent per annum from 2.3 percent a year earlier, the filing said. Around 77.2 percent of borrowings were fixed-rate at end-September 2021, up from 74.9 percent a year earlier, the filing said.

FHT fully redeemed its S$100 million 4.45 percent perpetual securities in May 2021, and said it has no plans to issue new ones.

Frasers Hospitality Trust has 15 properties in its portfolio, across nine cities in Asia, Australia and Europe. The portfolio includes 3,071 hotel rooms and 842 serviced residence units, according to the trust’s website.

The AGM is scheduled for 19 January.

Read FHT’s filing to SGX.

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