[SINGAPORE] Frasers Property is proposing to privatise Frasers Hospitality Trust (FHT) at S$0.71 per stapled security, due to FHT’s inability to improve the distribution and growth of the trust in the face of macroeconomic headwinds.
This is the second time in three years that Frasers Property has attempted to privatise the stapled group. It tried to do so in September 2022 for S$0.70 per stapled security, though the privatisation attempt failed then after being voted down by shareholders.
In a statement on Wednesday (May 14), FHT’s manager said the decision followed a strategic review of FHT amid a worsening macroeconomic environment. It said a weaker foreign exchange rate against the Singapore dollar and a higher interest rate environment, among other factors, have made it more difficult for the managers of FHT to grow its distribution and net asset value (NAV).
The current offer price of S$0.71 apiece implies a 1.11 times, or 11.1 per cent, premium over its NAV, and exceeds the implied average premium over NAV of former Singapore real estate investment trust (Reit) privatisations since 2020 of 1.04 times.
As at the time of the announcement, FHT has issued about 1.9 billion stapled securities.
“We have put forward an offer for FHT which safeguards the interests of Frasers Property’s shareholders. The arm’s length offer was arrived at after taking into consideration the financial and business effects of the privatisation to Frasers Property, both over the short and long term, in addition to a number of FHT financial reference points,” said Loo Choo Leong, group chief financial officer of Frasers Property.
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During a briefing to the media on Wednesday afternoon, Eric Gan, chief executive of FHT’s manager, said the macroeconomic environment has gone “further south” since the last attempt to privatise FHT in 2022.
“Foreign exchange has continued to weaken further. Interest rate has risen, further impacting us,” he said.
The Covid-19 pandemic has also had a “significant, lasting impact” on FHT’s valuation. While FHT was trading at 0.95 times its NAV prior to the pandemic, the trust’s valuation has become “worse” after the pandemic, trading at 0.73 times its NAV, said Gan.
FHT has faced challenges attracting capital flow due to its scale and size. As a small Reit and small float, it is unable to attract institutional investors to grow meaningfully. It also does not have as much debt headroom as its peers to engage in acquisitions.
Privatisation route offers “certainty”
During FHT’s strategic review last month, the board considered several options to unlock the trust’s potential value, said Gan.
These include keeping FHT listed, but potentially divesting selected assets or rebalancing its portfolio. The manager also considered selling the entire platform to a third party and distributing the net proceeds to securityholders.
However, the board eventually agreed that privatisation was the best way forward, as it would allow stapled securityholders to immediately realise their investment at a premium to NAV. It would also offer certainty as it will be executed by the sponsor, which has obtained the financial resources to conduct the privatisation exercises.
Gan was optimistic that the manager would be successful in its bid to privatise FHT this time around.
In 2022, Frasers Property attempted to privatise the stapled group for S$0.70 per stapled security. However, the resolution narrowly missed the minimum approval level of votes representing 75 per cent of units required for it to be passed at the September 2022 scheme meeting. It attained favourable votes representing 74.88 per cent of units from around 70.91 per cent of stapled securityholders.
Gan was of the view that the latest offer price of S$0.71 is “a lot higher” than S$0.70 when compared in terms of the premium it offers on the NAV. While the previous offer of S$0.70 was at a 7 per cent premium to NAV, the latest offer is higher at 11 per cent.
Said Gan: “Don’t just look at one cent, but look at the percentage. I think that speaks volumes, because 11.1 per cent is a lot higher than any of the other metrics.”
On May 6, FHT reported a 6 per cent drop in its distribution per stapled security to S$0.010257 for its first half year ended Mar 31, from S$0.01091 in the corresponding year-ago period, in light of lower net property income (NPI) and higher finance costs.
NPI for the period fell 2.5 per cent on the year to S$43.5 million from S$44.7 million, while revenue rose 0.9 per cent to S$63.8 million from S$63.3 million in H1 FY2024, due to increased contributions from Koto no Hako – the retail component of ANA Crowne Plaza Kobe – and higher other income.
The scheme is expected to be effective by end-August 2025, subject to the approval of the scheme by stapled securityholders and various other conditions being fulfilled. The scheme meeting for stapled securityholders is expected to be in late July.
Stapled securities of FHT ended S$0.02 or 3 per cent higher at S$0.685 on Wednesday.
