Frasers Hospitality Trust (FHT SP/BUY/Target: S$1.02)
Placement to fund Sofitel Sydney Wentworth acquisition.
- Strategic partner TCC will subscribe for 59.3m units in line with its 39.56% stake in the REIT, with the remaining 90.7m units offered to investors at S$0.81-0.82 per share.
- This is in line with the guided placement of up to 150m units announced at the time of acquisition and works out to raise S$121.5m-123m, representing half of the acquisition price, with the remaining half to be debt funded.
6% yield for Sofitel Sydney Wentworth
- Sofitel Sydney Wentworth is yielding 6%, similar to that of the recent Sydney Hilton Hotel purchase by Bright Ruby group for S$442m.
- This translates into a hedged property yield of around 5% vs a hedged trading yield of 6.8% (unhedged trading yield of 7.1%), in line with the 50%-50% debt:equity split that we were expecting to make the transaction leveraged yield-accretive.
Transacted price in line with independent valuation
- The transacted price is in line with independent valuation of A$222m by Savills and A$226m by JLL.
- The RevPAR of A$193.7 and occupancy of 87.6% at Sofitel compare favourably to that of Sydney’s hospitality sector (RevPAR: A$168, occupancy: 83.7%) which was among the strongest performing cities in Australia in 2014.
Acquisition in line with strategy
- Acquisition is in line with management's strategy of building a quality portfolio of properties in prime locations.
- The transactions extend FHT’s footprint in Australia from 11.3% to 22.4% by asset value. The portfolio asset value would increase by about 14% to S$1.9b.
Maintain BUY
- Maintain BUY and target price of S$1.02, based on DDM (required rate of return: 8.2%, terminal growth: 2%)
(Vikrant Pandey, Derek Chang)
Source: http://research.uobkayhian.com/
