Fraser HTrust

DPU is decreasing 9.3% to 1.12 cents for 3rd quarter 2018 financial result .

9M DPU is down 5.9% to 3.54 cents. Looks like the current price of 70.5 cents may go lower due to DPU weaken .

 Looks like price may slide down towards 68 cents and below .

 Not a call to buy or sell.

 Please do your own due diligence.

 SINGAPORE, 26 JULY 2018 Frasers Hospitality Trust (“FHT”), a stapled group comprising Frasers Hospitality Real Estate Investment Trust (“FH-REIT”) and Frasers Hospitality Business Trust (“FH-BT”), today announced that for the third quarter ended 30 June 2018 (“3Q FY2018”), its GR and NPI were S$38.2 million and S$28.5 million respectively, down 1.8% and 2.8% year-on-year (“yoy”).

 The declines were mainly due to weaker performance from its Australia and Malaysia properties. The soft performance of the Australia portfolio was attributed to the more competitive trading environment in Sydney.

However, Novotel Sydney Darling Square performed better yoy with the return of its full room inventory compared to last year when the number of available rooms was affected by renovation.

The Westin Kuala Lumpur reported lower room and food and beverage revenue due to significant reduction in business and government activities leading up to and after the general election in Malaysia. Softer demand from the Middle East also contributed to the hotel’s lower revenue.

 In contrast, the Singapore portfolio recorded stable performance on the back of increased operating efficiencies at both properties, and stronger food and beverage revenue at the InterContinental Singapore.

The UK properties performed better yoy due to higher room rates and occupancies arising from increased leisure demand. DI decreased by 8.1% yoy to S$21.1 million on the back of lower NPI and higher finance costs. As a result, DPS was 1.1226 cents, 9.3% lower yoy.

Ms Eu Chin Fen, Chief Executive Officer of the Managers1 said, "We turned in weaker performance this quarter primarily due to the significant decline in revenue at The Westin Kuala Lumpur and a more competitive trading environment in Sydney. Our hotel in Kuala Lumpur was much affected by significant pullbacks in business and government spending prior to and after the Malaysia general election which saw the unexpected election results adding uncertainty to businesses and major project. Review of Portfolio’s Performance In 3Q FY2018, the Australia properties reported lower gross operating revenue (“GOR”) and gross operating profit (“GOP”) as the trading environment in Sydney has been more competitive due to softer corporate demand. However, Novotel Sydney Darling Square performed better yoy as it benefited from having its full room inventory compared to last year when there was renovation. Novotel Melbourne on Collins continued to perform well in this quarter, with strong revenue per available room (“RevPAR”) growth of 11.6% yoy. The portfolio RevPAR rose only by 2.0% yoy on the back of higher occupancy. The Singapore portfolio recorded stable performance, with GOP increasing 4.2% yoy despite a drop in GOR of 1.5%. The higher GOP was attributed to increased operating efficiencies at both properties and stronger food and beverage revenue at the InterContinental Singapore.

The portfolio RevPAR declined 3.8% yoy as Fraser Suites Singapore pursued a volume strategy by lowering its average daily rates (“ADR”). GOR and GOP of the UK portfolio grew yoy by 3.1% and 4.0% respectively due to ADR and occupancy gains arising from increased leisure demand. ANA Crowne Plaza Kobe’s GOR declined 4.9% yoy due to softer banquet performance. However, the decline in its GOP was lower at 3.2% due to productivity and efficiency gains achieved by its food and beverage division.

 The Westin Kuala Lumpur’s GOR and GOP declined yoy by 13.5% and 35.7% respectively as a result of consequential pullbacks in business and government spending leading up to and after the Malaysia general election which saw the unexpected election results.

While the hotel maintained its market share vis-à-vis its peers, its revenue was affected by weak market demand, with corporate and government spending stalled on the back of uncertainty surrounding businesses and projects. Demand from the Middle East has also weakened for the quarter.

 Market Outlook Tourism Australia reported a yoy increase in international arrivals of 6.1% for the first five months of 2018, with Chinese visitors growing by 10.5%. A relatively large number of new rooms is anticipated to enter the Sydney market over the next three years but continued strong demand is expected to offset the supply increase. Stable occupancy and anticipated increases in ADR are likely to continue to support RevPAR growth in the city 2.

 The Melbourne hotel market, on the other hand, is expected to stay muted. 3 growth has been hard to come by and with a glut of new supply in 2018 and 2019, this is anticipated to remain the case for some time3. Singapore Tourism Board (STB) reported a yoy growth of 6.9% in visitor arrivals for the first five months of 2018. China and Indonesia were the top source markets for tourism, accounting for 35.3% of total visitor arrivals. In the near term, hotel demand is expected to remain strong due to continued arrivals growth while limited hotel supply should reduce supply-side pressure.

 Hotel trading performance is anticipated to pick up in 2H2018. Increased marketing efforts by STB and the positive outlook in Asia-Pacific tourism should continue to drive visitor arrivals growth 4. In the UK, weaker economic growth is expected to persist in 2018 as considerable uncertainty still relates to Brexit. While stronger global growth could help cushion inbound business and leisure travel to the UK, the weaker economic growth of the country is likely to depress ADR growth. The weak British pound that has made the UK more affordable for inbound tourists may also ‘fizzle out’ 5. For January to June 2018, Japan National Tourism Organization recorded 15.6% growth in foreign visitors.

While growth of inbound tourism continues, high supply levels may concern hoteliers. But new regulations on minpaku (home-sharing type of accommodation) and strong demand fundamentals could mitigate the negative impact of heightened competition6.

Despite tourist arrivals declining 3.0% yoy to 25.9 million, tourist receipts still inched up 0.1% to RM82.2 billion last year. Tourism Malaysia targets to achieve 33.1 million tourist arrivals and RM134 billion in tourism receipts for 2018. It reported a yoy decline of 3.4% in tourist arrivals for January to April 2018. In Kuala Lumpur, hotel room rates are expected to remain stagnant in the near future, in view of the new room supply that has entered the market since last year.

 This would deter the existing hotels from raising their rates in order to stay competitive7. For January to May 2018, the Federal Statistical Office of Germany recorded a yoy increase of 5.0% in the number of domestic and foreign overnight stays8. In Dresden, the total number of domestic and foreign visitors rose 8.9% yoy for January to May 20189. Dresden, the capital city of the Free State of Saxony, continues to grow its pipeline of MICE events for 2018 and 2019 including Bauen Kaufen Wohnen, Florian, Borsentag Tag Dresden, HAUS, Sachsenback and Green and Sustainable Chemistry Conference.