1Q24 Op Update: Kobe retail plaza returns to FHT’s operations
- Operational performance in line with expectations; SG RevPAR dipped 26% q-o-q to S$246 on softening demand and a general decline in average length of stay
- FHT will be taking over Kobe retail plaza by way of the termination of in-place master lease, Termination fee of up to c.JPY4.25b (c.S$39m SGD) to be funded by existing JPY denominated debt facilities
- MICE calendar to see incremental demand for FHT’s assets in SG, JP (Osaka Expo 2025) and KL
- Maintain BUY with current TP of S$0.62
1Q24 Operational Update
- All markets saw sequentially higher RevPARs y-o-y in 1Q24 with the exception of Singapore and the UK
- Singapore market: RevPAR of S$246 (-26% q-o-q / -16.6% y-o-y) on lower occupancy rate at a 14.1ppt decline q-o-q and lower ADR at -7.6% q-o-q; Softening demand for Frasers Suites SG with pressure from new supply within the precinct
- Seasonally lower MICE events and a general decline <in> average length of stay amongst tourist arrivals in 4Q23
- Australia market: RevPAR of AUD226 (+5.7% y-o-y, +11.8% q-o-q); Pick up in occupancy from a year ago on recovery of MICE segments and seasonally higher demand across the summer quarter
- Capital Management stable with healthy gearing levels of 34.5%, and ICR ratio of 3.4x
- Outlook for 1H24 calendar year remains positive on strong pipeline of MICE events in Singapore, Japan and KL amongst FHT’s geographical markets including Singapore’s vibrant concert scene in March and Japan’s Expo 2025 which should see some spillover effect on FHT’s hotel in Kobe
FHT to take over operations of Kobe retail plaza with strategic synergies with existing Kobe ANA Crowne Plaza (CPK). FHT will be taking over operations of the ancillary retail mall under CPK, which was previously master lease tenanted to the previous owner of CPK. The termination sum will be subjected to independent valuation, but at a cap of JPY4.25b, or c.S$39m, which will be funded by FHT’s existing JPY denominated debt facilities running at an interest rate of c.1.0 – 1.5%. The retail expertise will be undertaken by the existing asset operators which has been in place since the master lease. There will be no further capex requirements at the mall, with immediate focus to refresh mall offering to extract synergies with hotel guests at CPK, and improving occupancy. CPK is one of the key laggard assets under FHT’s portfolio, with the biggest occupancy gap against 2019 levels, across the portfolio. The improving MICE scene will see spillover effect for the asset, especially from the Japan’s Osaka Expo 2025.
Likely passing up on a ROFR asset – Capri by Fraser Changi. It was announced that FHT’s right-of-first-refusal asset, Capri by Fraser Changi, is undergoing due diligence in a potential sale to a third party. The rumoured sales price of the asset approximates c.S$170m for a 313-room asset, or c.S$543k per key . Markets are seeing tighter than valuer cap bid by buyers as the interest rate environment softens, with CLAS divesting their SG Mount Sophia asset at a c.3.2% exit cap, which we believe to reflect exit yields for Capri Changi at above valuation. Cap rate range remains tight, with a negative carry on the asset, while FHT will continue to look at opportunities abroad where asset yield spread still gives a positive carry over borrowing cost, for the likes of Japan.