Frasers Hospitality Trust

Frasers Hospitality Trust ("FHT" or the "Trust") is offering approximately 182,099,000 stapled securities at Singapore 88 cents each. FHT can be considered as a late comer to the game with many listed peers already listed on SGX. They didn't even bother to "book-build" a price range, as such, investors like you and me will not be able to "gauge" the pricing demand. The market cap will be around S$1.05b

The IPO will start on 1 July 2014 and ends on 10 July 2014 12pm. It will start trading on 14 July 2014 at 2pm.

The reason why i took so long to analyze this counter is frankly because it is too boring... not another Hospitality Trust please....as such, i will try to make it as simple as possible for you to make a decision. 

According to the preliminary prospectus, there will be 136.645m placement units and 45.454m public units. There will be sufficient for most people, so don't have to be too "kan cheong" that you will not get them.

Initial Portfolio

The initial portfolio consists of 6 hotels and 6 serviced residences.

Just take a look at the portfolio and decide for yourself if you like those properties located in those cities. 

The properties are not running at full occupancy, in this regard, there could be some upside should the management find ways to up the occupancy rate.

Over-allotment

There will be an over-allotment option of around 35.6m units in case of "overwhelming" demand. Retail investors would be better off should such over-allotment be exercised so as to create some price support on its debut.

Distribution

There will be semi-annual distributions for periods ending 31 March and 30 Sep each year.

Financial

The distribution yield is around 7% after top-up and drops to 6.5% should the top-up be removed.

Cornerstone Investors

Cornerstone investors took in around 232.949m units. The cornerstone investors are 

• DBS and DBS private bank
• Fortress Capital
• Metro Holdings Ltd
• Family office of SingHaiYi and Shanghai Summit.

What I like about FHT

• The sponsor and it associate will continue to hold 65% of FHT post IPO (assuming over-allotment is not exercised). This creates alignment of interest.
• Experienced board and management team
• Downside protection through Master Lease and Tenancy Agreement coupled with Sponsor's corporate guarantee
• A good pipeline of acquisition properties from the Sponsor
• Long leasehold period and further upside if occupancy improves

My Concerns

• The properties are spread all over the globe and some are not in key cities (e.g Kobe, Glasslow). In addition, it is a mix bag of luxury, upscale and budget types accommodation. While this may create diversification, there is frankly no synergies for joint marketing among the properties.

• Currencies exposure vis-a-vis the SGD payout.
• Income support from "payment top up arrangement". What happens when those support is withdrawn subsequently when the lease expires?
• Over supply of such type of trust

Listed Peers

According to REIT Data, the peers are trading as follows:

Assuming a fair trading range of between 6.5%-7.5%, the price will trade between 82-95c. 

My gut feel is that given the relatively large float and the lacklustre performance of hospitality trust over the last few months, i believe the upside, if any, is probably limited to a few cents. This is after all, a yield play.

I will give it a one chilli rating. Buy only if you like this trust and believe it will debut between 86-91c on the first day.

Happy IPOing.