Due to unrealised fair value losses, Frasers Property TQ5 (FPL) has reported a significant decline in earnings for FY2023. However, group CEO Panote Sirivadhanabhakdi remains focused on building a resilient portfolio for long-term returns.
“What this means to us is the need to build a business that can withstand the ups and downs of the property cycle and continue to deliver returns over the years,” he says.
For the year to Sept 30, earnings plunged by 85.9% y-o-y to $123.2 million. Without the fair value change, FPL’s profit before interest, fair value change, tax and exceptional items (PBIT) increased by 5.1% y-o-y to $1.31 billion due to higher contributions from its residential and hospitality businesses, as well as maiden contributions from the acquisition of a 50% stake in the mall Nex, located in Serangoon Central.
FPL, in recent years, has been actively building up its portfolio of investment properties to enjoy more recurring income, but FPL is keen on better returns that can be fetched from development activities, too. “We believe [this] can give a better risk-adjusted return to our portfolio,” he says.
However, FPL will be cautious and selective in choosing asset classes and geographies, prioritising earnings and cash flow visibility. It also emphasises that it will actively manage its assets for recurring income, including unlocking value where it makes sense.
FPL will also seek joint investors to be more capital-efficient on its investment properties. “[We will also] make capital available for development exposure [which] gives us a high value where it can deliver best risk-adjusted returns,” Sirivadhanabhakdi continues.
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Fair value losses
At the same briefing, group CFO Loo Choo Leong explains that the fair value losses had to be booked because of macroeconomic woes ranging from higher interest rates to inflation to geopolitical tension. “The real estate business is not spared the vagaries of these factors,” he says.
He also points to FPL's year-end being Sept 30, which means it reports ahead of the other players whose year-ends are in December. There will be pressures on the values of investment properties.
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“Cap rate expansions are happening across various markets, especially in places like the UK and Europe, where we operate. [This is] less in these parts of the world, but [it is] affecting us nonetheless. [This is also] coupled with higher interest expenses and our high debt to fund some of the acquisitions,” Loo adds.
Like many large property companies, FPL has been trading a significant discount on its book value. FPL’s shares, which closed at 82.5 cents on Nov 15, is a 67.3% discount to its NAV of $2.52 as of Sept 30. Year to date, the share price is down by more than 12%.
When asked, Sirivadhanabhakdi acknowledges that FPL is undervalued and aims to bridge the gap. Apart from expanding the portfolio size and improving the bottom line, he mentions divestments are always an option, as every asset has the right price.
