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Frasers Hospitality Trust

I was scanning through the various REITs and got interested in Frasers Hospitality Trust (FHT), and decided to read up more about it. After looking through FHT's financial statements announcement and presentation slides dated 23 Jan 2020, I managed to gain some knowledge about FHT and I understand them within the following framework that I have in mind.

Risk - Is the REIT over-leveraged? Would it face issues when interest rates increase? With these questions in mind, I looked at the following indicators which I think would help me understand the situation better.
  • Cost of loan: According to FHT, their effective cost of borrowing was 2.4%.
  • Current Ratio: Based on the data from SGX, the Current Ratio for FHT is 1.53. From FHT's presentation slides, their interest cover was 5.7 times.
Value - Is it worthwhile to buy this REIT? Is there potential for its income and value to grow over time? To answer these questions that I have, I tried to look for the following indicators.
  • Net Asset Value (NAV): FHT's NAV per share was $0.7233. The price of FHT shares at the end of yesterday is $0.65, a 10.1% discount from its NAV.
  • Occupancy rates: I looked up Singapore Tourism Board's hotel statistics, and data shows that the average occupancy rate for hotels in Singapore was 87.1% in 2019. While this figure is not comparable to the occupancy rates cited in FHT's presentation slides (which presented one quarter's worth of data and also included properties outside of Singapore), I think this would give me a rough benchmark to understand the performance of FHT's properties. FHT's Singapore properties' occupancy rate was 86.7% for the period from 1 Oct to 31 Dec 2019. The occupancy rates for FHT's properties in Australia and the UK were higher than 87.1%, whereas properties in Malaysia and Japan were lower.
  • Property lease: Amongst FHT's properties, only 4 out of its 15 properties are freehold.
Efficiency - Is it using its resources efficiently and creating value? I'm not sure whether these indicators below are suitable for answering this question, but these are what I think would give me a rough sensing.
  • Return on Assets (ROA): Similarly from SGX's data, FHT's ROA is 2.149, which is also lower than FEHT and CDL HTrust. 
As I'm not trained in accounting, I do find it a challenge to understand the various financial information and how to analyse the performance of a REIT. Hope someone can correct me if any of the above information or understanding is not right. In any case, after going through the above thinking process, I don't think I would buy this REIT. My main concern is that I'm looking for something to keep for the long-term, and I'm not sure how the decaying property leases of FHT's properties would impact its value in the future.

Comments

  1. You have an organized way to look at REITs fundamental. I seldom see people use current ratio for REITs as its income and cash flow are quite consistent. For efficiency for REITs, I've use Distribution on Capital (dividend / (equity+debt) to measure ability to generate distribution from debt and equity and Distribution Margin [dividend / total income (exclude disposal)] to measure efficiency in managing expenses. For FHT, its distribution on capital is lower than median but distribution margin is higher than median.

    For current situation, I would prefer to load up big cap REITs with good fundamental, preferably those with 5 billions market cap, or min. 3.5 billions market cap. If you are interested, I shared how I analyze REITs in my blog at https://reit-tirement.blogspot.com

    ReplyDelete
    Replies
    1. Hi Vince, thank you so much for your kind comments! Really appreciate your sharing! I have just read your blog and the articles are very informative. I will continue to read up and learn! Thank you so much for sharing!

      Delete
    2. Thanks for your complement. I also got lots to learn too

      Delete

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