Singapore hospitality trusts seen as ripe for more take-private deals

CDL Hospitality Trusts

16/06/2022 04:23

By Anshuman Daga
    SINGAPORE, June 16 (Reuters) - Deals to take private
Singapore's real estate investment trusts (REITs) are expected
to gain momentum as the companies reel under rising interest
rates and fierce competition to buy assets, bankers and analysts
said.
    The trend in the sector, which is worth $7 billion, was
underscored by a proposal this week by Frasers Property Ltd
(FPL)  FRPL.SI , part of Thai tycoon Charoen Sirivadhanabhakdi's
TCC Group. FPL wants to take private its unit Frasers
Hospitality Trust in a deal that values the target at $1.35
billion ($973 million).  urn:newsml:reuters.com:*:nL4N2Y00CJ
    Hospitality REITs count large groups as their main
shareholders. There has been a wave of consolidation among REITs
in other sectors over the past couple of years as companies have
sought scale and have expanded overseas.
    Prospects of a surge in take-private deals come against the
backdrop of the industry's damage from the COVID-19 pandemic and
its disruption to travel and tourism.
    "For the moment, hospitality and retail REITs which are
sub-scale and trade at a big discount to now-lower net asset
value (NAV) may be targets," said Quiddity Advisors analyst
Travis Lundy, who publishes on the Smartkarma research platform.
    Singapore's REIT market is dominated by retail investors 
attracted to the firms' high dividends. REITs in Singapore must
pay out 90% of their rental income, whereas a similar form of
investment, called property trusts, need not.
    "In hospitality REITs and commercial REITs, takeovers are
scale-merit opportunities but take-privates like Frasers are
really more about corporate strategy and opportunism than about
industrial logic," said Lundy.
    Singapore had 44 REITs and property trusts with a combined
market value of S$117 billion, according to Singapore Exchange
research published in May.
    Frasers Hospitality Trust (FHT)  FRHO.SI  has the second
least valuable collection of assets among five listed
hospitality trusts on the Singapore bourse. Others include
Ascott Residence Trust  ASCO.SI , CDL Hospitality  Trusts
 CDLT.SI  and Far East Hospitality Trust  FAEH.SI .
    The other is diversified OUE Commercial REIT  OUEC.SI ,
which has investments in both commercial and hospitality
sectors.
    FHT's net asset value has declined since its listing in
2014, partly because of the sector's muted growth and the
strengthening of the Singapore dollar against its operating
currencies, it and FPL said.
    "The proposed privatization of Frasers Hospitality Trust by
its sponsor should result in a positive kneejerk reaction on
hospitality S-REITs (REITs in Singapore) which are still trading
at discounts to their NAVs as valuation plays catch-up in the
face of the ongoing hospitality recovery," said Citi analyst
Brandon Lee.
    He said in a report he expected the deal to result in
"deeper evaluation by sponsors managing REITs currently trading
at deep discounts to NAVs, as assets under management growth
becomes increasingly challenging in the face of the rising cost
of capital, especially for the smaller ones."
     The offer price of S$0.70 a share for FHT represented a 44%
premium to its volume-weighted average price in the 12 months to
April 7, the day before a strategic review was announced.
    The offer valued it at 1.07 times its NAV, while FHT's peers
trade at lower valuations, analysts said. FHT said its small
size had limited its ability to reap benefits from its listing.
    "There's so much competition to buy assets, even from
private equity players. With interest rates rising, funding
assets to boost scale becomes even more challenging," said one
banker familiar with REIT deals.
  ($1 = 1.3896 Singapore dollars)

 (Reporting by Anshuman Daga; Additional reporting by Gaurav
Dogra in Bengaluru; Editing by Sumeet Chatterjee and Bradley
Perrett)
 ((anshuman.daga@tr.com;))