Frasers Property makes offer to privatise Frasers Hospitality Trust at 70 cents per unit

SINGAPORE - Frasers Property is privatising subsidiary Frasers Hospitality Trust (FHT) with an offer of 70 cents per unit.

The offer price represents a premium of 43.8 per cent over the 12-month volume-weighted average price of FHT and is 16.7 per cent over a recent analyst consensus target price.

The offer values FHT at 1.07 times its net asset value. This is higher than the historical average of FHT’s trading value since its listing.

It also exceeds the current trading multiples of other listed Singapore hospitality trusts and other previous S-Reit privatisations.

FHT owns some $2 billion worth of hospitality assets such as hotels and service apartments in key cities in Asia, Australia and Europe. The properties it owns in Singapore include the InterContinental Singapore hotel. 

FHT had considered various options, such as an expansion via mergers or acquisitions, before concluding on the privatisation by Frasers Property. 

Both Frasers Property and FHT said the privatisation was being done in view of poor market conditions and challenges faced by the hospitality group following more than two years of the pandemic.

“Muted growth in our key hospitality markets is one of the key reasons why we are not able to deliver distribution per stapled security and net asset value growth,” said Ms Eu Chin Fen, chief executive of FHT’s managers. 

The strengthening of the Singapore dollar against FHT’s operational currencies is another key reason why the trust was not able to deliver satisfactory earnings growth, she said. 

Mr Eric Gan, the chief financial officer of FHT’s managers, said foreign currencies had depreciated against the Singapore dollar by more than 10 per cent since FHT’s initial public offering (IPO) in 2014. 

“Although the latest valuation has actually gone up in local currency, when we convert it back to Singapore dollars, it is actually a negative figure... so that gives some illustration on how foreign exchange actually impacts our valuation,” he said. 

Ms Eu said that uneven economic recovery in the markets where FHT operates slowed the performance of its assets, which remain significantly below pre-pandemic levels.

Geopolitical tensions, such as the Russia-Ukraine war, and looming recessionary pressures have also added to the uncertain outlook. 

In arriving at the final offer price of 70 cents per FHT unit, Ms Eu said the trust’s managers commissioned valuations of its properties as at end May this year and this took into account the earnings potential of the trust post-Covid-19.

The offer price had also taken into account pre-pandemic portfolio valuations. She added that the offer price implies a total return of about 23 per cent for those who had invested in FHT during its IPO and subscribed to its rights issue. 

FHT, which is backed by Thai billionaire Charoen Sirivadhanabhakdi, whose son runs Singapore-listed Thai Beverage, first listed in Singapore in 2014 at 88 cents.

The proposed privatisation will require the necessary regulatory and court approvals. If approvals are met, the privatisation is expected to be completed by the fourth quarter of this year.

For Frasers Property, the acquisition will allow the company to increase its investments in hospitality assets in locations that it is already familiar with.

Mr Loo Choo Leong, group CFO of Frasers Property, said: “We are cognisant of the prevailing factors that may negatively impact the recovery trajectory of the hospitality sector... having said that, as with all real estate sectors, there are upcycles and down cycles.

“Frasers Property takes a long-term view of the returns from our investments and we remain cautiously optimistic about the long-term growth potential of the hospitality sector.”

Frasers Property and its related parties own 63 per cent of FHT. Both companies, which are listed on the Singapore Exchange, called for trading suspensions last Thursday (June 9).

Trading started again on Monday, with Frasers Property closing 1.82 per cent lower at $1.08, while FHT’s shares jumped 4.55 per cent to 69 cents. 

Frasers Property closed at $1.10 last week prior to its trading suspension, while FHT closed at 66 cents.

FHT has jumped by more than 40 per cent this year following declines in the previous two years, giving it a market value of $1.3 billion.