Brokers’ take

Compiled by Navin Sregantan

EAGLE HOSPITALITY TRUST | BUY (INITIATE)

JUNE 26 CLOSE: US$0.685 (S$0.93)
TARGET PRICE: US$1.00

Jefferies Singapore, June 26

Eagle Hospitality Trust (EHT) has 18 hotel assets located across 12 high-growth US metros with expected growth of 3.1 per cent per annum (pa), underpinning robust business and leisure demand.

At the same time, we forecast muted industry supply growth of 1.9 per cent pa due to elevated construction costs.

We thus expect 1.8 per cent pa revenue per available room growth in its micro markets. The trust has ample diversification with no single metro accounting for more than a third of the total rooms.

Further, demand generators are also diversified across business, leisure and airport. The portfolio is well invested and has full-service hotels flagged with three top franchisors (Marriott, Hilton and InterContinental).

It offers a good combination of growth and stability. We forecast EHT's topline to grow 1.8 per cent over the next two years, resulting in about 1.5 per cent annual distribution per unit (DPU) growth on full payout. Additional growth will come from acquisition of pipeline and third-party assets.

Its 9.4 per cent yield and price-to-book ratio of 0.8 time looks inexpensive, relative to peers that offer 290 basis points lower yield on average.

FRASERS COMMERCIAL TRUST (FCOT)| BUY (MAINTAINED)

JUNE 26 CLOSE: $1.66
FAIR VALUE: $1.69

OCBC Investment Research, June 26

Frasers Commercial Trust (FCOT) announced that Google will be taking 344,000 sq ft of space at Alexandra Technopark (ATP) for five years, resulting in a committed occupancy rate of 93.7 per cent as at June 25.

This is firmly in line with our earlier expectations. Given that the lease commences from Q1 CY2020, we expect more pronounced NPI/DPU contribution to be seen after FY2020.

In our view, this announcement would help address concerns about the sustainability of capital contributions required in bolstering distribution per unit post-FY2019.

Also, this places FCOT in a favourable position in rent negotiations as it backfills the 77,800 sq ft of space that Microsoft will be pre-terminating at ATP on January 2020.

With this longstanding issue now in the rear mirror, we believe FCOT will now be able to focus on acquisitions abroad, supported by a healthy gearing of 29.1 per cent (as of Q2 FY2019).

Disclaimer: All analyses, recommendations and other information herein are published for general information. Readers should not rely solely on the information published and should seek independent financial advice prior to making any investment decision.
The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.