Frasers Hospitality Trust offer’s premium only OK: Analyst

Singapore two-dollar billsSingapore two-dollar bills

Frasers Property‘s S$0.70 bid to take Frasers Hospitality Trust private offers unitholders an “okay,” but not overwhelming, premium, Travis Lundy, an analyst/Insight Provider at Quiddity Advisors, who publishes on Smartkarma, said on Monday.

The offer doesn’t seem overwhelming as the REIT has seen writedowns to its net asset value (NAV) over the past several years, Lundy said in a note. While current NAV is at S$0.6519 a unit, it was at S$0.78 in September 2019, pre-Covid, and at S$0.87 in September 2017, the note said.

Lundy also took some issue with the stated rationales for the deal; he noted the deal rationale for sponsor takeovers often “insults the intelligence of unitholders,” but he added this offer was “pretty special.”

The rationales cited revenue per available room (RevPAR) being “significantly below pre-Covid-19 levels,” and that a further strengthening of the Singapore dollar could limit revaluation gains and distribution per stapled security (DPS) growth, Lundy noted.

“Markets gonna market and the sponsor wants to be opportunistic while things are bad. The manager didn’t hedge the foreign-exchange exposure on foreign assets and now the the Singapore dollar is stronger than before (vs non-U.S. dollar currencies), having gained 10 percent in eight full years,” Lundy noted.

The unit has underperformed because of Covid and lack of travel; travel starts picking up (generally upbeat second-quarter report and presentation on 29 April) and now they want to buy it at a premium to a downtrodden NAV,” he said. 

Lundy noted the offer terms haven’t been declared final, and he said an activist investor may “get upset” over the small premium to NAV.

“If there is noise, one might expect a little bump,” potentially of “a few cents,” but not as much as 10 Singapore cents, the note said.

Units of Frasers Hospitality Trust ended Monday at S$0.69, up 4.55 percent.