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FHT shareholders - The fine line between wisdom and greed

Frasers Hospitality Trust shares fell from $0.70 to $0.54 (nearly a 25% drop) on 13 Sep 2022 following a failed privatisation bid by its parent company. 

To be fair, it was a close call, with 74.88% of shareholders voting in favor of the deal, falling narrowly short of the 75% approval threshold.

Ostensibly, the remaining 25.12% shareholders thought the offer of 70 cents to be undervaluing FHT's assets. 

The main complaint here appears to be that privatisation offer was opportunistic and low-balling, especially given that FHT's prospects seem to be improving as more and more countries treat covid as endemic and re-open their borders.

Now, one has to wonder whether those who voted against the deal were overly optimistic on FHT's prospects and missed out a chance to cash out at, what i thought was, a fair price for FHT.

To be clear, I am invested in Frasers Property Limited, and was indeed quite nonplussed at the privatisation offer, which (in my opinion) was essentially bailing out investors from a languishing FHT at the expense of FPL.  Thus, I am not entirely upset with the offer falling through. 



The fact is FHT's DPU had been steadily falling way before the pandemic struck. For FY2019, FHT's DPU was 4.4129 cents.  Indeed the DPU fell quite consistently at 6% each year between 2016 - 2019.

The question for me is, even if there was no pandemic, what would FHT's DPU have looked like? In the best case scenario, it might be maintained at 2019 levels. Or you know, it could have continued to fall 6% a year to around 3.9 cents in 2021.

At the privatisation offer price of $ 0.70, FHT's yield would be slightly over 6.3% assuming DPU recovered to 2019 levels, which in my view, is unlikely.  Conversely, if FHT's hospitality assets had continued to underperform and DPU fell below 4 cents, then paying $0.70 a share would be significantly overpaying for the assets.  

Ask yourself, if you were an investor, would you pay 70 cents for FHT if the DPU was 3.9 cents or even 4.4 cents? I wouldn't.  

All in all, the privatisation offer appeared to be rather fair to me.  Now that the shareholders have spurned the advances of FPL, one has to hope that there would be a miraculous recovery in store for FHT. Only time will tell. 

If not, the nay-voters might rue the day they decided to leave cash on the table to chase a recovery pipedream. 

Onward to FI my friends.






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