Frasers Property (formerly: Frasers Cpt (FCL))

[weijian]

"Face slap" on my previous post as Chaoren is exploring "realization of NAV".

The last consolidated balance sheet I had shows the balance sheet composition (major items only) as below:
(1) Investment properties (retail/commercial/industrial/service residences leased to 3rd parties) at 130% of equity.
(2) JV/associates (ownership in REITs/joint ownership of properties etc) at 21% of equity.
(3) Development properties for sale at 19% of equity.
(4) PPE (own operated hotel properties/industrials) at 11% of equity

Total (1)+(2)+(3)+(4) = 180% of equity is roughly balanced out by 95% gearing + 900mil perpetual bond (5%)

As for gearing, it is 95% and has came down quite a lot, as it was 140% as early as FY20. For FY23, net interest costs at 33% of EBITDA (or 3x interest coverage).

I reckon trying to revalue and realize its NAV is been forced by rising rates/less willing bankers to refinance at preferable rates, than a desire to realize/revalue?

Frasers Property majority owners could sell company, assets amid review: WSJ

The review, which is in its initial stages, is part of shareholders’ efforts to raise capital to help reduce the debt accumulated over the past few years as a result of acquisitions.

https://www.businesstimes.com.sg/compani...review-wsj

[weijian]

IIRC, in the last 1 year, this is the 2nd property that FHT has "refused" to buy from its Sponsor, Frasers Property. The property has been sold to Tuan Sing - bad news for both FP and Tuan Sing OPMIs really - The Former losing AUM (Asset Under Mgt) and latter getting more AUO (Asset Under Ownership).

Right of First Refusal in connection with Fraser Residence River Promenade

The Notice was given pursuant to the right of first refusal letter issued by Frasers Property in favour of Perpetual (Asia) Limited (as trustee of FH-REIT) and the FH-BT Trustee-Manager dated 23 June 2014 (the “ROFR”).

The Managers have considered the opportunity and is of the view that acquiring the Property does not meet FH-REIT’s prevailing investment strategy. As such, the Managers have decided not to exercise the ROFR

FHT announcement:
https://links.sgx.com/FileOpen/FHT_Annou...eID=803401

Tuan Sing to acquire iconic riverfront hospitality asset in Singapore for $140.889 million
https://links.sgx.com/FileOpen/TSH%20Pre...eID=803400

[weijian]

"Face slap" on my previous post as Chaoren is exploring "realization of NAV".

The last consolidated balance sheet I had shows the balance sheet composition (major items only) as below:
(1) Investment properties (retail/commercial/industrial/service residences leased to 3rd parties) at 130% of equity.
(2) JV/associates (ownership in REITs/joint ownership of properties etc) at 21% of equity.
(3) Development properties for sale at 19% of equity.
(4) PPE (own operated hotel properties/industrials) at 11% of equity

Total (1)+(2)+(3)+(4) = 180% of equity is roughly balanced out by 95% gearing + 900mil perpetual bond (5%)

As for gearing, it is 95% and has came down quite a lot, as it was 140% as early as FY20. For FY23, net interest costs at 33% of EBITDA (or 3x interest coverage).

JV/Associates are a huge part of FPL and since they are accounted on the BS via equity method, the "equity" is accounted for but the borrowing is not. As such my previous 95% gearing has underestimated its true gearing.

Let's do a quick "approximately correct" exercise as below

FP can be simplified as below (normalizing all numbers to 100):
equity=100
debt at parent level=95
gearing= 95/100 = 95%

Adding in the JV/associate:
equity (exclude JV/associate)=79
JV/associate equity=21
debt at parent level=95
gearing= 95/(79+21) = 95%

If these JV/associate are all investment property holding companies, it may have put a 20% down-payment and borrowed the rest. Let's assume avg gearing=70% of equity for its JV/associate (ie. putting 20% downpayment+10% principal loan repayment = 30% equity and 70% loans)

Adding in the JV/associate and its debt
equity (exclude JV/associate)=79
JV/associate equity=21 (total asset=70, 49 debt)
debt at parent level=95
True gearing = (95+49)/(79+21) = 144/100 = 144%

The hypothesized "true" gearing is 144% rather than 95% as we seen on the audited accounts......So I finally understand why our Thai Godfather Chaoren loves JV/associates.

[weijian]

This is a simple Finance 101 question which gotten an incomplete answer, suggesting either ignorance or avoidance.

61st ANNUAL GENERAL MEETING TO BE HELD ON 16 JANUARY 2025 RESPONSES TO SUBSTANTIAL AND RELEVANT QUESTIONS

Question: What is the cost of capital and is management closely tracking the important metric?

Answer: Through the disciplined execution of the Group’s multi-pronged approach, Frasers Property's average cost of debt on a portfolio basis as at 30 September 2024 stood at 3.9% per annum. This also reflects the Group's ability to secure competitive interest rates despite prevailing market conditions. The Group’s cost of debt is tracked on an on-going basis as part of our financial discipline. Where there are substantial changes to the market environment, part of our response would include reviewing the cost of capital.

The Group actively manages its interest rate exposure by maintaining a balanced mix of fixed and floating rate borrowings, with 72.9% of its total debt on fixed rates as at 30 September 2024. This approach helps mitigate the impact of interest rate volatility while providing the flexibility to capitalise on market opportunities.

https://links.sgx.com/FileOpen/FPL_Respo...eID=830272

[ghchua]

This is a simple Finance 101 question which gotten an incomplete answer, suggesting either ignorance or avoidance.

Question: What is the cost of capital and is management closely tracking the important metric?

Hi weijian,

They have answered on cost of debt. Since cost of capital is cost of debt plus cost of equity and they have remained silent on their cost of equity, we can assume that their cost of equity is....zero. 

[weijian]

This is a simple Finance 101 question which gotten an incomplete answer, suggesting either ignorance or avoidance.

Question: What is the cost of capital and is management closely tracking the important metric?

Hi weijian,

They have answered on cost of debt. Since cost of capital is cost of debt plus cost of equity and they have remained silent on their cost of equity, we can assume that their cost of equity is....zero. 

hi ghchua,

You might just be right on this because to the controlling shareholder, the cost of OPMI equity is........probably zero.

Or at least for asset gatherers who wish to retain/keep their wealth within their own gene pool while retaining absolute control, their perceived cost of equity is........zero.

[weijian]

The Frasers' group of companies produce very detailed AGM MoM (including the names of those OPMIs who asked the questions) and so it is interesting to read and think through some of raised questions.

I thought there are 2 interesting ones I picked up:

Scrip dividend unlocking value? Since FPL is trading at deep discounts to NAV/RNAV, why would issuing new equity (at such deep discount) be unlocking value? The entire Chaoren group is relatively highly geared and so I suppose it wants cash more than scrip (to be paid up from the child to parent). If Chaoren commits to not take scrip and OPMIs take scrip, then it can actually improve the low free float issue. But of course, Chaoren will not leave out a good deal (scrip dividend for companies trading at deep discount to NAV/RNAV) and so eventually, scrip dividend will only make the low free float issue worst.

Mano believes that interim dividend could contribute to greater stability of share price? I believe my hero Mano is referring to the XD drop in share price after record date. And since there is no interim, the final dividend tend to be "larger", contributing to a larger XD share price drop. Psychologically, this surely make sense. But would having an interim make it better? Psychological biases need psychological treatment. So personally, I avoid looking at prices before/after XD to keep my heart/mind stable instead.

MINUTES OF THE 62ND ANNUAL GENERAL MEETING

Mr Vincent Tan raised the possibility of adopting a scrip dividend scheme to unlock value for shareholders. Mr Panote thanked Mr Vincent Tan for his suggestion and said that the Board would take it into consideration.

Mr Mano expressed optimism that the Company would be able to maintain future dividend payouts without compromising earnings. He suggested that the Company consider the payment of interim dividends should earnings improve, noting that this could contribute to greater stability in the Company’s share price. Mr Chumpol thanked the shareholder for his comments and said that the Board would take the suggestion into consideration.

https://links.sgx.com/FileOpen/FPL%20202...eID=876416

[weijian]

Just slightly 9 months after FHT was privatized, FPL/TCC have started the process to unwind the amalgamated assets + related party contracts. To recap, FPL as FHT sponsor owned ~24% of FHT before the privatization and bought over the non TCC shares of ~40% in the privatization. Post privatization, FPL owns ~ two third and TCC owns ~one-third of FHT assets.

With this proposed optimization, FPL will continue to own ((0.4/2)+0.3+0.3)/2.1 = 0.8/2.1 ~38% of the assets. So if asset value (or property value) is a good approximation of the EV (enterprise value) and loans are at FPL level, then FPL is actually still holding a higher % of FHT post this optimization (ie. 38%) compared to pre FHT privatization (~24%). Not a very asset light move IMO.

The assets are been curved out into 4 buckets with the mature assets taken by TCC (estate planning?) and the others with various plans. As a developer, this is probably still a net positive for FPL.

On another note, interesting to see that FPL categorized only slightly >50% of FHT's original portfolio as "mature". In general, REITs are supposed to be largely mature income generating assets and so this really makes one wonder about the "calibre" of ex FHT manager...

THE PROPOSED FHT PORTFOLIO OPTIMISATION

After categorising the FHT Properties based on their risk-adjusted return and growth characteristics, different transaction strategies are implemented for each category of assets in connection with the Proposed FHT Portfolio Optimisation:

(i) Stabilised Assets, valued at S$1.1 billion - they are mature assets and have loweryielding characteristics. FPL will be divesting all of its 63.28% stake in these assets to TCCGI to unlock capital;

(ii) Assets with Potential, valued at S$0.4 billion – they are assets with the potential to achieve higher yield through value enhancement initiatives. Following the Proposed FHT Portfolio Optimisation, these assets will be held 50.05% by TCCGI and 49.95% by FPL through MLBT so that FPL continues to retain exposure to them;

(iii) Non-Core Assets, valued at S$0.3 billion – these assets are effectively not transacted and will continue to be held under FHT or the New AU Trust (as the case may be) for future opportunistic divestment; and

(iv) Asset for Potential Redevelopment, valued at S$0.3 billion – this will be 100% owned by FPL to enable any potential redevelopment of the whole site on which the development known as “Valley Point” (which includes FSSG) is located at.

FHT optimization: https://links.sgx.com/FileOpen/FPL_Annou...eID=894183
FHT optimization ppt: https://links.sgx.com/FileOpen/FPL_Prese...eID=894185

[weijian]

The assets are been curved out into 4 buckets with the mature assets taken by TCC (estate planning?) and the others with various plans. As a developer, this is probably still a net positive for FPL.

So it seems that TCC stepped in to buy not because it wants "mature assets" but because these assets couldn't be sold to 3rd parties without affecting FPL's mgt business.

BT author opinioned that frictional costs are high and that is true. But there will also be savings in terms of interest costs and if AEI/redevelopment is done right, these "upfront costs" shouldn't be a big deal.

Valley Point could be the hidden gem in Frasers Property’s S$2.1 billion hospitality ‘asset-light’ proposal

“Following the privatisation of Frasers Hospitality Trust in 2025, we conducted a comprehensive review of the hospitality portfolio and reached clear conclusions on how each asset is best managed going forward,” said Eu Chin Fen, CEO of Frasers Hospitality. “The proposed FHT portfolio optimisation is the outcome of that review, which strengthens our platform while we continue to drive performance through our operating capabilities,” she added.

But, during the media briefing on Thursday, a telling detail emerged regarding why this deal is being conducted as an interested person transaction with TCCGI. Frasers’ financial advisers on the deal admitted that they quietly shopped the portfolio around to external third parties. But the result was a total snub. Outside buyers did not bite for two clear reasons. First, they felt the asset valuations were far too full. Second, Frasers insisted on a strict precondition: the group must retain the long-term management rights to the hotels. It comes as no surprise that independent global funds have zero desire to pay top dollar for a physical property while letting the seller walk away with the operational cream. TCCGI is essentially stepping in to buy what the open market found unpalatable, providing execution certainty because they are the only buyer willing to accept Frasers’ terms.

Furthermore, shifting assets from one pocket of a billionaire’s empire to another is an expensive hobby. Frasers expects to receive S$177.9 million in cash from the net difference between its acquisitions and disposals. Yet, the total transaction cost sits at a staggering S$78.4 million due to stamp duties and capital gains taxes. By the time the tax collectors take their cuts, the net cash proceeds dwindle to just S$99.5 million. Paying S$78.4 million in friction costs just to move assets to a sister company is a steep price to pay for corporate housekeeping.

https://www.businesstimes.com.sg/compani...t-proposal