<Alert!> Frasers Property Limited: Grinding out stable returns
- A good start to FY22 with improving operational metrics seen across most divisions.
- Key positives: i) Pre-sales totaled S$2.2bn with good sales momentum across markets, ii) industrial and logistics portfolio remains resilient with development completions of over S$1.0bn over FY22-23F offering upside to fair values, iii) commercial occupancies stable except Australia
- Key negatives: i) Australia commercial portfolio remaining under pressure, ii) hospitality assets saw slight improvement q-o-q except in North Asia
- Net debt/equity remain stable at c.76%, which lifts concerns that company is “over-geared”
- Maintain BUY; TP of S$1.70
Key highlights | 1QFY22 | 1QFY21 | y-o-y |
Occupancies | |||
Retail | |||
– SG | 91.0% | 92.9% | +0.1 ppt |
– AU | 80.3% | 93.8% | -12.5 ppt |
Commercial | |||
– SG | 94.5% | 94.4% | +1.9 ppt |
– AU | 80.2% | 91.0% | -10.8 ppt |
– TH (retail & office) | 90.2% | 91.7% | -1.5 ppt |
Industrial & Logistics (I&L) | |||
– AU | 100.0% | 100.0% | n.a. |
– EU | 96.4% | 96.7% | -0.3 ppt |
– TH (warehouse) | 90.5% | 86.4% | +4.1 ppt |
– TH (factory) | 78.4% | 77.2% | +1.2 ppt |
– UK (business parks) | 90.9% | 89.7% | +1.2 ppt |
Hospitality | |||
RevPAR (S$) | |||
– North Asia | 42.5 | 67.4 | -36.9% |
– APAC ex North Asia | 108.0 | 99.0 | +9.1% |
– Europe | 184.4 | 54.3 | +240.3% |
Occupancy | |||
– North Asia | 48.20% | 52.90% | -4.7ppt |
– APAC ex North Asia | 75.90% | 75.70% | +0.2 ppt |
– Europe | 69.90% | 29.40% | +40.5 ppt |
(+) 1QFY22 saw steady sales momentum in Singapore and Australia.
- Singapore (unrecognised revenues of S$0.4bn): 1QFY22 saw steady progress with Riviere achieving 44% sell-through rates (completion in 1HFY23), up from 36% sell-through rates as of Sept’21. Parc Greenwich (executive condominium) has sold 88.1% of units (Completion 1HFY24) with Bedok Point the next conversion project that the group will execute on next.
- Australia (unrecognised revenue of S$1.4bn). Steady progress seen with the group selling 521 units and also settled 257 units in 1QFY22.
(+/-) Investment properties were generally stable except Australia office and retail which saw higher vacancies; logistics portfolio remained to be very resilient.
- Singapore commercial: Overall Commercial and retail occupancies were relatively stable q-o-q at 91% and at 94.5%. While we see rentals increasing for its office properties, we keep a watch out for its retail properties with c.24% of leases expiring for the remainder of FY22 which we see mixed results.
- Australia commercial: COVID-19 restrictions has impacted the group’s office occupancy and rents while retail turnover is expected to remain under pressure due to the Omicron wave which challenged the trading environment for their retail tenants. Office and portfolio saw a 12.5 ppt drop in occupancies to 80.3% largely due to vacancies across Rhodes Corporate Park with retail occupancies remaining at c.80.2%.
- Australia and Europe Industrial & Logistics (I&L): Portfolio remain substantially full at 100% (flat q-o-q) and 96.4% (-0.3 ppt y-o-y) with fairly long WALEs of 5.2 years and 5.0 years respectively with positive leasing activity seen in Australia and Europe.
- Australia L&I pipeline. Remains robust with the group expected to deliver close to S$1.0bn in GDV in FY22/23 with a total landbank of 2.7m sqm in Australia and Europe.
- UK Business Parks: Occupancy remained improved marginally to 90.9% ( +1.2 ppt y-o-y) table at 87.9% (+0.1ppt).
(+) Hospitality division is seeing a turnaround with Europe leading the way.
- FPL continue to expand its footprint in the Asia Pacific region (North Asia + 6.5% to 3,595 rooms) and Asia Pacific (+4.4% to 7,096 rooms) with the most recent in Phnom Penh where there is demand for international-grade accommodation.
- Systemwide occupancies remain stable but still at a suboptimal level (North Asia, 48.2%, -4.7 ppt, Asia Pacific (ex North Asia) at 75.9%, +0.2ppt). Europe saw a significant uplift in occupancies to 69.9% ( + 40.5 ppt) especially for its UK properties (Malmaison and Hotel du Vin)
- In RevPAR terms, North Asia dropped by 36.9% to S$42.5/night while Asia Pacific S$108/night (+9.1%) while Europe RevPAR rose by > 200% y-o-y to S$184.8/night.
- Expect to see progressive recovery with the increase in vaccination rate in the respective countries which will eventually lead to progressive relaxation of travel restrictions.
(+) North Asia portfolio : steady returns
- China: The group sold 402 units coming from Phase 1 of Club Tree, Songjiang (97% sold of 414 units of total 1,880 units) at S$11,521 per sqm with more units to be sold from 2022. FPL have locked in S$0.3bn in recognised revenues.
- Vietnam: Occupancy dipped to 79.7% mainyd due to addition of Q2 Thao Dien serviced office tower (23% occupancy) while its Melinh Point remains stable at > 95%. Looking ahead, the group’s will continue to add to its industrial portfolio with its ready-build-factory (“RBF”) factory to be completed by 3QFY22.
- Thailand Industrial/Commercial/hospitality : Occupancy rates have improved across its various asset classes although its Hospitaltiy metrics still remain below optimal level but should improve as Thailand relaxes its restrictions gradually.
- Thailand residential: Sold 1,252 units (S$0.1bn recognised revenues) with 63 active projects.
Our thoughts and Implications on stock price:
We see green shoots throughout FPLS portfolio with 1QFY22 showing promise as its divisions impacted by COVID-19, especially Hospitality and retail sectors are showing signs of turning around. Pre-sold revenues for its residential projects across Singapore, Australia , China and Thailand stands at S$2.2bn, offering income visibility in the near term. The group’s I&L portfolio in Australia and Europe continue to deliver resilient cashflows. With continued development starts in the I&L remaining robust and compressing returns for stabalised properties, we see upside to the group’s earnings and fair values as it delivers close to S$1.0bn of L&I developments in Australia and Europe.
Maintain BUY, TP S$1.70