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Monday, 23 June 2014

My views on Fraser Hospitality Trust

I  was initially drawn to the IPO of Fraser Hospitality Trust for a few basic reasons (prior to prospectus coming out).

1. The other REITS are getting expensive and has not came down despite the rumoured May effect and the World Cup effect.

2. Quality name hotels and Serviced Residence in some exciting places like Japan (Abenomics 3 Arrow, 2020 Olympics), Singapore with the rising rich in S.E.A (Indonesia, Vietnam (Potentially)). Although London and Australia are stable markets that are not exciting (Australia experiencing slow-down due to China cooling, London region still reeling from Euro crisis. Although further confirmation about the NPI contribution compared to NTA contribution is a stark difference (See Pg 19, Sg properties are overvalued by a huge margin, I know it is not a direct co-relation as the property is in semi prime region like Bugis, but 14% difference is a lot?)

Looking at the prospectus (Pg 21,22,23,24) I have seen the Fraser Suites line of Serviced Residences and have faith in it. Especially the Singapore counterpart as the place is very popular with rich and affluent Japanese. Intercontinental is a good brand. The rest are placed within close distance to MRTs and other city hubs or are iconic buildings which the rich like to stay in (Class factor).

Looking at pg 29, the serviced residence aspect is quite scary as a huge majority of their tenants are only for less than 1 month (Dont know if that is the norm for serviced residence, adding on Entertainment and leisure makes up 23.3% of the clientèle, apart from the huge others being lumped in one segment) 1-6 months only 24.6%

Looking at pg 30 and 31, their hotel client segment looks normal to me although occupancy rates are not at high 90% for hotels (Understandable as they serve the high end market) and service residences (This part I cannot understand, can someone enlighten me?)

Pg 32 
Singapore has also staged many global events in recent years including the inaugural
Singapore 2010 Youth Olympic Games, Formula One SingTel Singapore Grand Prix and the
Volvo Ocean Race. In September 2012, Formula One announced that they will continue the
Grand Prix Night Race in Singapore for another five years. In April 2013, a new nature
tourism attraction, the River Safari, opened which will complement the city state’s current
offerings, including the Singapore Zoo, the Night Safari and Jurong Bird Park. Future tourist
attractions include the Singapore Sports Hub at Kallang (2014) and the National Art Gallery
Corporate demand in Singapore is likely to remain stable in the short to medium term as
Singapore remains one of the key economic hubs in Asia Pacific with its prudent economic
policies that continue to attract foreign firms and investors.
According to the latest global rankings by the International Congress and Convention
Association, Singapore has retained its position as Asia’s Top Convention City for the 12th
consecutive year in 2013, affirming the city’s position as a Meetings, Incentives, Conventions
and Exhibitions (MICE) destination. In the long term, Singapore is poised to continue its
stable growth as it is able to attract high profile events and delegates beyond Southeast Asia.
Sounds on the whole too optimistic, but general outlook for S.E.A should be fine, wealthy customers should be fine in S.E.A

Kobe also has a number of global and domestic companies which generate corporate
demand to the city. These include Procter & Gamble, Nestle, Kawasaki Heavy Industries,
Asahi Holdings and “K” Line Group which has established headquarters in Kobe.
In addition, MICE events held in Kobe are also key demand drivers. According to Japan
National Tourism Organization (JNTO), Kobe was the sixth largest host of events since 2010.
A total of 92 meetings were held in 2012, in which the majority were meetings related to
biomedical innovation. Well-established MICE infrastructure such as the Kobe Convention
Centre on Kobe Port Island, easy accessibility from major cities in Japan and the presence
of three airports which are within easy access has enabled the city to become a more
attractive business destination.
The Kobe Biomedical Innovation Cluster (KBIC) has been planned in Port Island (Bay area)
for 15 years. Kobe city promotes Port Island to become a centre of medical technology and
17 research and development facilities have already been constructed around Iryo Centre
station. A cancer medical centre is still in construction process. In cooperation with more than
200 companies, KBIC will be one of the major national projects that also contribute to higher
performance of hotels in the surroundings.
Sounds okay to me, only part is that Japanese companies are a bit stingy on providing their employees on serviced residences for their foreign counterparts when working on projects unless it is short durations, tourism is their key target as evident in their client profiling segment earlier.

London properties are not very attractive, with major events happening this year, income may not be paid as dividends for the following year

I like the ratio of the rentals

I just saw the Money Mind interview with the Fraser CEO, he said he prefers the stability of Hotels with long term staying customers than to take advantage of the huge spike of clients should an event happen.

Got no time to analyse the financial information, shall post an update again

I am going to be vested in this share, but I would like to hear counter arguments and stuff. THIS IS NOT AN POST TO ENCOURAGE YOU TO BUY. Please consult your own professional investment banker/consultant