Frasers Property is a multinational real estate and property management company that owns, develops, and manages a property portfolio worth S$37.6 billion as at 30 September 2019. Its portfolio comprises commercial, hospitality, retail, residential, and industrial assets located in 25 countries including Singapore, China, UK, and Australia.
Frasers Property is also the sponsor of four Singapore-listed REITs: Frasers Centrepoint Trust, Frasers Commercial Trust, Frasers Hospitality Trust, and Frasers Logistics & Industrial Trust. As REIT investors ourselves, I was interested to learn more about the parent company behind the Frasers family of REITs — a few of which are on our watchlist.
Here are eight things I learned from the 2020 Frasers Property AGM:
1. Revenue fell 12% year-on-year to S$3.8 billion in FY2019. Similarly, profit before interest, fair value change, exceptional items, and tax (PBIT) fell 3% to S$1.3 billion. CFO Loo Choo Leong explained that the drop in profit was due to the non-recurring and cyclical nature of property development. Even though recurring PBIT increased to 75% of total PBIT in FY2019, non-recurring PBIT fell from S$526 million to S$303 million which dragged total PBIT down.
2. Singapore and Australia remain Frasers Property’s largest geographical segments contributing 29% and 24% of PBIT respectively. The CFO shared that the Australian residential market has been subdued over the past 18 months but is showing signs of bottoming out, and the group is restocking its residential land bank including the A$202.5 million purchase of a housing estate in Melbourne. Land prices in Singapore remain high despite poor sales velocity in its property market.
3. Over 80% of Frasers Property’s total property assets are now recurring income assets which comprise suburban retail malls in Singapore, industrial/logistics properties, and offices/business parks. The CFO added that Frasers Property has shifted its portfolio toward recurring income assets which allow the group to remain stable in the face of industry headwinds and uncertainties.
4. A shareholder brought up the proposed merger between Frasers Commercial Trust (FCOT) and Frasers Logistics & Industrial Trust (FLT). In his view, he was unhappy that FCOT unitholders were being treated unfairly by purchasing FLT units at 1.28 times book value (compared to FLT unitholders purchasing FCOT units at 1.03 times book value), and the acquisition of the remaining 50% interest in Farnborough Business Park. The CFO replied that unit prices are a function of market forces which they have no control over. He added that an independent financial adviser would be evaluating the merits of the merger and proposing their recommendations to the respective boards of FCOT and FLT. The merger also must be approved by unitholders of both sides at their upcoming EGMS. As a sponsor, Frasers Property will not be voting at the EGMs.
5. The same shareholder then wanted to know the reason for the drop in annual dividend per share to six cents in FY2019 when it was previously at 8.6 cents from FY2015-2018. The CFO explained that property development is a cyclical business and that the higher dividend over the past few years was boosted by higher property development income. Despite the lower dividend this year, Frasers Property’s dividend payout ratio was maintained at 50-60%.
6. Another shareholder brought up the merger of CapitaLand Mall Trust and CapitaLand Commercial Trust, and wanted to know how Frasers Property – and its REITs – would compete with its larger rival. Head of Frasers Property Retail, Low Chee Wah, admitted that although size is important for inclusion in various indices, Frasers Centrepoint Trust (FCT) has carved a niche for itself as a leading player in the Singapore suburban retail segment, and investors may prefer a REIT that specialises in one asset class. The CFO also views that FCT’s portfolio of suburban malls stands ‘shoulder-to-shoulder’ with CapitaLand, and added that FCT was recently included into the FTSE EPRA/NAREIT Global Developed Index.
7. The shareholder then brought up the current COVID-19 outbreak and wanted to know the impact on business. The CFO said that it was ‘relatively early days’ in terms of business impact. Overall, the management has put in place precautionary measures in line with Ministry of Health guidelines to ensure the health of its visitors, customers, and staff. (I had to do a temperature check before entering the AGM and was given one face mask as a door gift.)
8. A shareholder highlighted that debt had increased to S$17.4 billion in FY2019 — from S$14.9 billion in FY2018 and S$11.6 billion in FY2017 — and wanted to know why debt was still increasing. The CFO explained that although debt has increased, Frasers Property has also grown its asset base and its debt-to-asset ratio was maintained at 0.47. Internally, the board is comfortable with a debt-to-asset ratio of 0.8 to 1.0, as the group has grown its recurring income streams which would allow it to ride the cycles better.
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