Frasers Property's privatisation offer an opportunity for FHT unitholders to unlock value: CGS-CIMB

This is as the scheme consideration is at a premium to its BV.

Frasers Property’s (FPL) proposal to take Frasers Hospitality Trust (FHT) private through a trust scheme of arrangement offers existing FHT unitholders an opportunity to unlock value, says CGS-CIMB Research analyst Lock Mun Yee.

This is as the scheme consideration is at a premium to its book value, she adds. Lock notes that the scheme consideration of 70 cents per unit implies 1.07x P/NAV, representing a 43.8%-48.5% premium over FHT’s one-, three-, six- and 12-month volume-weighted average price (VWAP).

“The transaction is in line with FPL’s long-term strategy of leveraging on its synergistic multi asset class capabilities to create value, with hospitality remaining one of its core businesses. It will also allow FPL to increase its investment in hospitality assets and to leverage on its deep understanding of FHT’s assets and adopt a disciplined approach to drive performance,” says Lock.

She notes that the company remains cautiously optimistic on the long-term prospects of the hospitality sector, highlighting the pro forma financial impact from the transaction. “FPL indicated that its pro forma FY2021 EPS (before fair value change and exceptional items) and net tangible assets (NTA) could decline by 5.5% and 1.3%, respectively, including transaction costs.”

From FHT’s perspective, it has long-term challenges which limited its growth including its sub-scale size relative to its Singapore REIT (S-REIT) peers — and as such was unable to reap the benefits of a continued listing, says Lock. “Meanwhile, its operating environment remains uncertain due to cost inflationary pressure, ongoing geopolitical tensions and rising interest rate outlook.”

CGS-CIMB maintains its FPL FY2022-FY2024 estimates pending the transaction’s completion, as well as leaving its RNAV and target price unchanged at $2.57 and $1.41 respectively.

As at 10.33am, units in FPL are trading 1 cent higher or 0.93% up at $1.09.

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