Singapore’s Frasers Property Makes $970M Buyout Offer for Hospitality Trust

Frasers Property is proposing to take SGX-listed Frasers Hospitality Trust private in an all-cash deal that values the REIT at S$1.35 billion ($970 million), according to a joint announcement on Monday, as the hospitality sector continues to face headwinds.

Also the trust’s sponsor, Frasers Property is offering S$0.70 in cash per share to take over the hotel and serviced apartment trust in line with a recent strategic review conducted by the REIT’s independent directors, citing the sector’s bumpy recovery, growing market uncertainties globally and the trust’s small size relative to its peers as factors precipitating the buyout.

“We concur with FHT managers’ board decision, following their strategic review, that their privatisation by FPL Group will provide the best course of action to optimise value for stapled securityholders,” said Loo Choo Leong, group chief financial officer of Frasers Property. “Hospitality remains one of our core businesses. This transaction will allow FPL Group to increase its investment in hospitality assets at locations that we are already familiar with.”

The bid by Frasers, which is controlled by Thai alcohol tycoon Charoen Sirivadhanabhakdi through his TCC Group, is above the one-year average trading price for FHT’s units, and investors sent the REIT’s equity up 5.3 percent on the Singapore stock exchange to S$0.69 on Monday.

Mid-August Vote

Subject to regulatory and court approvals, Frasers Property is proposing to buy the units it does not already own and increase its stake in FHT to 63.28 percent post-deal from 25.8 percent currently, while TCC will maintain its 36.72 percent interest.

The scheme consideration for FHT — which counts Khun Charoen’s TCC Group as its largest unitholder — is equivalent to a 43.8 percent premium versus its 12-month average price of S$0.487 and 16.7 percent higher than analysts’ estimates for 2022 of S$0.60, according to the company announcement.

The offer by Frasers Property, which is controlled by TCC, is still 20.5 percent below the trust’s IPO price of S$0.88 per unit.

The proposal requires approval from owners of at least 75 percent of the trust’s units at a scheme meeting expected to take place in mid-August. Should the proposal win approval from investors and regulators, the trust would be delisted from the Singapore exchange in the fourth quarter.

Bigger is Better

Chua Su Tye, head of REITs research at Maybank Kim Eng, advised unitholders to accept the chance to exit at a premium, while recommending opportunities to invest in other hospitality REITs seen as better positioned for recovery, such as CDL Hospitality Trust and Far East Hospitality REIT.

“FHT lacks scale; it ranks among the smallest S-REITs by market cap, and remains the smallest hospitality REIT under coverage,” Chua said in a research note on Monday. “Low trading liquidity from a small free-float which will likely need to climb over 4x to be considered for index inclusion, and high trading yields, will limit acquisition growth opportunities, in our view.”

Comprising 14 hotels and serviced residences across Asia, Australia and Europe, FHT’s portfolio is currently valued at S$2 billion and includes the 406-room InterContinental hotel at Singapore’s Bugis Junction and a 380-unit Novotel in Melbourne, Australia. The trust also holds Fraser Suites serviced apartment complexes in Australia, Singapore and the UK.

FHT’s portfolio is currently valued at around 15 percent less than Far East H-REIT, which has 12 assets worth S$2.34 billion, and a third lower than the S$3 billion portfolio of CDL Hospitality Trust, which currently has 19 completed properties.

Long-Term Challenges

Eu Chin Fen, chief executive of FHT’s manager, said the takeover bid was done after a strategic review conducted in April which concluded that privatisation is the “best option” for unitholders to realise their investments as the REIT continues to face “long-term challenges”.

The manager said the trust’s portfolio valuation grew by 35 percent since it went public in 2014, but this did not translate to higher distribution per stapled security and net asset value, due to the sector’s muted growth and foreign exchange risks.

The trust is also facing “significant risks” from the impact of the prolonged pandemic on hotels and tourism, while the hospitality recovery is being tested by ongoing geopolitical tensions and looming recessionary pressures.

DBS served as the financial adviser for FHT’s managers while OCBC and BofA Securities advised Frasers Property on the transaction.

Price Jumps on Takeover Bid

Singapore-listed Frasers will finance the proposal through a combination of company cash resources and a S$505 million loan from Bank of America, according to the statement.

Following the takeover announcement early Monday, investors reacted to the proposal positively as the price of FHT units rose by S$0.03 to S$0.695 at the end of the day from their value of S$0.66 on Thursday last week, when trading of FHT and Frasers Property shares were halted.

Monday’s closing price also represents a 14 percent jump from FHT’s unit value of S$0.61 a month ago and a 48 percent rebound from its S$0.47 price at the start of the year.

Investor sentiment for Frasers Property, however, was trending downwards with the company’s stock dipping by 2 percent to S$1.08 on Monday from its S$1.10 price last week, posting a steeper 4 percent decline from its S$1.13 valuation on 3 January.