Weak occupancy to weigh on Frasers Hospitality Trust's Australian assets

A surge in supply caused a decline in occupancy and room rates in the market.

Frasers Hospitality Trust (FHT) will continue to be dragged down by its Australia properties as the operating environment in the nation is expected to record subdued occupancy and room rates for the next 12 to 18 months, according to Moody’s Investors Service.

Its Australian properties account for 43% of its gross revenue and 36% of its net property income (NPI) for FY2019. In Q4, the gross operating revenue and profit of its Australia portfolio fell 1.6% and 2.8% YoY respectively, attributed to a challenging trade environment in Sydney and Melbourne.

A CBRE report for Q2 found that the growth in hotel visitor nights in the nation was offset by a surge in supply, which caused a decline in occupancy rates and thus room rates.

However, the management changes made in some of its Australia properties could buoy the performance of these assets, but the improvement is expected to only be marginal.

Furthermore, the REIT’s portfolio assets are found to be diverse across geographies and hospitality asset classes, and has no debt maturities until 2022. However, its asset size is considered small and there are risks around its tenant concentration.

Only its Australia assets posted weak sales, and the REIT recorded a 2.3% rise in NPI to $30.03m in Q4. Moody's expects the REIT’s net debt over EBITDA to remain around 8.4x over the next 12 to 18 months.

Photo from Novotel Melbourne on Collins's website