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Frasers Property's capital idea as it reports 11.4% rise in net profit

FPL announces plans for Frasers Property Capital with a view to joint venture with capital partners in a portfolio or property

Frasers Property (FPL) has been asked time and again whether it is interested in narrowing the discount between its share price - which ended at 92 cents on Nov 14, and its NAV as at Sept 30 of $2.64. “I have no control over the free float. The value of our company doesn’t justify the share price. There is a dilemma as shareholders see the value of this company being so much greater than it is. We just have to do good work, and hard work,” says Panote Sirivadhanabhakdi, group CEO of FPL on the sidelines of a results briefing on Nov 14.

As part of the company’s attempt to ‘create value’ FPL has set up Frasers Property Capital. “We have set up Fraser Property Capital to invite like minded partners to pursue opportunities together, eg we have a joint venture with Mitsui Fudusan in Macquarie Park; and to cultivate longer term partnerships, to share the risk and reward together and to work closely with our REITs,” Sirivadhanabhakdi says.

Chief Corporate Officer Chia Khong Shoong heads up Frasers Property Capital. In August, FPL announced the appointment of a chief investment officer for the unit reporting to Chia. Frasers Property Capital has a mandate to coordinate capital partnerships with like-minded investors keen to take part in the company’s growth, as it pursues investment opportunities aligned with its strategic objectives, the August press release says.

“It’s opportunity led. We do have existing assets that could be interesting for capital partners and if we monetise them we could have capital partners for those,” Chia acknowledges when asked if this is one way to monetise existing investment properties.

Analysts and market watchers are wondering if FPL is the likely winner of NTUC’s Mercatus portfolio of retail malls which was reported to be put on the market for more than $4 billion but scaled down to below $3 billion. Interestingly, FPL’s net debt to equity has been pared down to 64.8% and its management has articulated the group would be comfortable with 80% to 100% gearing ratio. At 80% FPL’s debt headroom would be around $2.9 billion.

As a result of the arithmetic, and the implementation of Frasers Property Capital, market watchers are wondering if this unit was formed to house the Mercatus portfolio.

“If there are new opportunities that come around, working with a capital partner could be ideal. So it’s a bit of both. I don’t think we’re constraining ourselves to say its one or the other,” Chia says when asked. However, he indicates that the Frasers Property Capital is unlikely to be the same model as Keppel Capital. He declines to reveal a target AUM.

“We’re not looking to set up a fund. What we are thinking about is seeding the joint venture with real assets that people can look at and touch and engaging with these partiners to look at those  opportunities. It’s not like the private equity model. Its like a joint venture where we are looking for partners that would want to joint venture with us and we would identify a property,” Chia elaborates.

FPL’s Pbit (profit before tax) fell by 12.3% y-o-y to $1.249 billion in FY2022 due to a one-time accounting gain in FY2021 (FPL has a Sept year-end) caused by the transfer of unrealised gains from developing to investing properties. According to group CFO Loo Choo Leong, this was a strategic shift to grow industrial and logistics. “If you take out $355 million transfer in FY2021, net profit would have increased by 61%,” Loo says. In FY2022, attributable profit rose by 11.4% to $928.4 million. The company announced a three cents dividend which represented a 30% payout of core earnings.

To mitigate the effects of foreign currency movements on FPL’s balance sheet, the company opts for a natural hedge by funding foreign currency assets with debt in the same currency. In a statement, the  property group said its foreign currency translation reserve, which reflects the effects of unrealised foreign currency movements on its net assets was lower by $456.8 million on a net basis in FY2022.

FPL is sponsor and major unitholder to three S-REITs, Frasers Centrepoint Trust, Frasers Industrial & Commercial Trust and Frasers Hospitality Trust. The company is also sponsor to two REITs in Thailand.

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