After almost 3 years, Frasers Property Ltd (SGX: TQ5) (FPL) is back with another delisting offer for Frasers Hospitality Trust (SGX:ACV) (FHT). Here we look at whether investors should support the delisting offer via a scheme of arrangement.
We would suggest that readers read this in conjunction with our previous article on FHT here as FHT has not changed significantly in the last 3 years with no new assets as well as a stable net asset value.
FPL is proposing to delist FHT at $0.71, just 1 cent higher than the offer 3 years ago. The method is via a scheme of arrangement, same as the previous delisting method. In 2022, the scheme of arrangement received 74.88% of the votes, just 0.12% short of the required votes of 75% to delist FHT.
For the uninitiated, a scheme of arrangement means that FPL is seeking to either buy all shares not currently owned by them — or none at all. FPL needs 75% of non-interested shareholders to vote in favour of the deal.
Therefore, FPL’s current stake of 25.59% in FHT does not matter in the equation.
Timeline
Should the offer go smoothly and FPL secures the required 75% of votes, FHT would be delisted by the 3rd quarter of this calendar year.
Should there be any change to the existing offer or change in conditions such as the material adverse effect clause kicking in, then the timeline would be extended.
Why is FPL delisting FHT now
The first delisting offer was on the backdrop of a weak macroeconomic environment coupled with weaker foreign exchange rate against the Singapore dollar, higher interest rate environment, global cost inflation and unforeseen events such as Brexit and the COVID-19 pandemic.
After the lapse of the previous offer in 2022, the macroeconomic environment has undergone further adverse changes, which has made it more difficult for the FHT Managers to meaningfully grow FHT’s DPS and NAV.
Looking at FHT’s last annual report for its FY ending Sept 2024 and comparing it to FY22, we can see that the recovery has been lacklustre with NAV recovering by a cent or so to $0.6574 while DPS recovered in FY23 before tapering off in FY24 to $0.0226.
NAV and DPU has not been able to recover to FY19 pre-pandemic levels of $0.7304 and $0.0441 respectively.
FHT’s RevPAR has recovered to pre-COVID-19 pandemic levels but various factors have constrained meaningful DPS growth. FHT explained that its DPS has not recovered to pre-COVID-19 pandemic levels due to the following factors, amongst others:
(a) inflationary cost pressure pushing up operating expenses such as staff costs and utilities
(b) the depreciation of currencies in FHT’s foreign markets against the Singapore dollar
(c) higher interest rates
Strategic review by FHT and rationale for delisting
On 23 Apr 2025, FHT announced that they would carry out a strategic review. Given that it’s been just 3 weeks since the announcement, we’re amazed at the speed with which the results have been delivered.
The FHT Directors assessed various strategic options based on the following criteria:
(i) Addressing Structural Constraints: How well each option addresses key factors that affect trading performance and valuation;
(ii) Unlocking Potential Value: Benchmarked against NAV and DPS accretion to Stapled Securityholders; and
(iii) Speed and Certainty: Timing and degree of certainty for Stapled Securityholders to unlock value.
Options where FHT remains listed
(1) increasing the yield or valuation of existing assets (through asset enhancement initiatives or redevelopment), considering the following: existing zoning and allowable use for each site (including potential for a change of use); remaining leasehold tenure of each property; suitability of alternative use options for each property location; constraints on REITs to redevelop assets; and costs and loss of income involved in any such asset enhancement initiative or redevelopment;
(2) divestment of selected assets and re-cycling of capital into yield accretive acquisitions; and
(3) re-balancing its portfolio and/or expansion of mandate into alternative hospitality asset classes.
Options resulting in a sale of FHT
(1) liquidation of assets and return of capital;
(2) sale of entire FHT platform to a third party and distribution of net proceeds;
(3) scaling up via acquisition / merger with another REIT; and
(4) privatisation of FHT by the Sponsor via a scheme of arrangement
After evaluating these options, the FHT Directors concluded that privatisation by the Sponsor was the preferred option to unlock value – subject to the Sponsor’s intentions regarding FHT and pricing.
Valuation of offer
The offer of $0.71 values FHT at about 1.08x P/B and approximately 1x the book value pre COVID-19. Therefore, the value of the offer is in line with the highest historic valuation of FHT.
Based on FHT’s information in the slide below, its peers are trading at 0.61x now and were trading at similar levels to FHT before COVID-19. This means the offer seems to be at the best possible valuation range.
Closing statements
We think that if FHT is so determined to delist itself and is attempting to do so again at effectively the same valuation, investors should give in and vote in favour of the deal.
Since COVID-19, FHT has not carried out a single acquisition. They have attributed it to a low debt headroom which limits it to a $187 million deal if it wants to acquire without equity fund raising and keep the gearing below 40%.
A headroom of $187 million is actually plenty for a hospitality REIT.
Looking at recent acquisition by peers, CapitaLand Ascott Trust acquired ibis Styles Tokyo Ginza and Chisun Budget Kanazawa Ekimae in Japan for S$180 million. Far East Hospitality Trust acquired a 319-room Four Points by Sheraton Nagoya hotel at Japan’s Chubu International Airport for just over S$50 million.
In addition, FHT’s peers have also carried out capital recycling via divestments while FHT has not done any.
Since the 2022 scheme received 74.88% votes, it means that FHT was very close to succeeding previously. We think some investors will relent this time. Of course, on the flip side, an higher offer price that is 1 cent higher is not a significant incentive for the remaining investors to say yes this time.
Looking at the valuation of the offer, it seems to be a good deal and therefore investors could arbitrage by selling FHT and buying its peers trading at a lower valuation. If investors who want to sell and want to avoid the scheme failing again, perhaps selling into the open market would be a safe bet.
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