Frasers Hospitality Trust (SGX:ACV) is a SGD$1.47B real estate investment trust (REIT), which is a collective vehicle for investing in real estate that originated in the US and has since been taken on board globally. Real estate analysts are forecasting for the entire industry, negative growth in the upcoming year , and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the Singapore stock market as a whole. Below, I will examine the sector growth prospects, and also determine whether Frasers Hospitality Trust is a laggard or leader relative to its real estate sector peers. View our latest analysis for Frasers Hospitality Trust
What’s the catalyst for Frasers Hospitality Trust’s sector growth?
Issues around rate hikes and yield changes have made investors sceptical of REITs. The capacity for these investment vehicles to absorb a rate hike should be considered, hence, factors such as lease durations and pricing power in the market would require a deeper dive. Over the past year, the industry saw negative growth of -4.80%, underperforming the Singapore market growth of 7.92%. Frasers Hospitality Trust leads the pack with its impressive earnings growth of 89.96% over the past year. However, analysts are not expecting this industry-beating trend to continue, with future growth expected to be -48.72% compared to the wider REIT sector growth hovering next year.
Is Frasers Hospitality Trust and the sector relatively cheap?
The REIT sector’s PE is currently hovering around 16x, relatively similar to the rest of the Singapore stock market PE of 14x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 7.02% on equities compared to the market’s 7.94%. On the stock-level, Frasers Hospitality Trust is trading at a lower PE ratio of 9x, making it cheaper than the average REIT stock. In terms of returns, Frasers Hospitality Trust generated 10.99% in the past year, which is 3.97% over the REIT sector.
What this means for you:
Are you a shareholder? Frasers Hospitality Trust is a REIT industry laggard in terms of its future growth outlook. This is possibly reflected in the PE ratio, with the stock trading below its peers. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto Frasers Hospitality Trust as part of your portfolio, or maybe increase your holding. If you’re bearish on the stock, now may not be the best time to sell!