Staying nimble with a robust balance sheet
- FPL’s balance sheet remains robust; 78% net debt-to-equity at end-1QFY24.
- I&L was the star performer in 1Q with strong reversions and high occupancy.
- We maintain our Add rating with a TP of S$1.41.
1QFY9/24 business update highlights
In its 1QFY24 business update, FPL indicated that its investment property portfolio remains stable with strong leasing activity in I&L as well as resilient retail portfolios in Singapore and Thailand. It also intends to lift its commercial portfolio returns with asset enhancement initiatives (AEIs) in Australia and the UK. Overall retail portfolio occupancy improved 0.1% pt qoq to 98.7% while commercial segment occupancy dipped 0.5% pt to 95.1%. Balance sheet remains strong, with end-Sep 2023 net debt to equity ratio up 2.2% pts qoq to 78%, due mainly to capex, partly offset by FCT’s divestment of Changi City Point.
End-1QFY24 unbilled residential revenue at S$2.4bn, slight dip qoq
As at end-1QFY24, FCL’s unbilled residential revenue stood at S$2.4bn. In Singapore, residential pre-sales stood at S$0.9bn, mainly from Parc Greenwich EC (100% sold) and Sky Eden @ Bedok (92% taken up as at end-1QFY24). FPL has replenished its Singapore residential landbank through the acquisition of a 25% stake in the Lorong 1 Toa Payoh land parcel. In Australia, robust demand enabled FPL to sell 286 units and hand over 235 units during the quarter. Unbilled revenue in Australia amounted to S$0.8bn at end1QFY24. In China, FPL handed over 640 units in 1QFY24 and has remaining S$0.7bn of unrecognised revenue. It selectively replenished its residential portfolio in 1QFY24 through an acquisition of an effective 34% stake in two projects in Shanghai (total 1,611 units). Although unbilled residential revenue in Thailand dipped to S$0.03bn as at end-1QFY24, FPL plans to launch seven new single-detached, townhome/twin home and condominium segments in the country during the rest of FY24.
Robust leasing demand for I&L segment amid positive reversions
L&I segment continued to perform well with strong leasing demand in Australia and Europe. 1QFY24 occupancy was at 100% in Australia and 96.7% in Europe. Management indicated that it has leased/renewed c.92.8k sq m of space in 1QFY24 with positive single to double digit rental reversions across I&L’s portfolio. FPL has a further c.528k sq m of I&L space scheduled to be completed in FY24-25F. Meanwhile, leasing demand for its industrial properties in Thailand improved in 1QFY24, with steadily rising warehouse and factory occupancy; demand came from automotive, electronics and e-commerce and 3PLs.
Mixed hospitality recovery in 1QFY24
FPL’s hospitality segment saw healthy demand in Australia, Indonesia, Europe, the Middle East and Africa (EMEA), despite economic uncertainty continuing to weigh on the tourism recovery in these countries. While FPL’s EMEA revenue per average room (RevPar) improved 2.7% yoy in 1QFY24, its RevPar for Asia Pacific declined 7.9% yoy due to weaker performance in Singapore following the end of government quarantine contracts and increase in supply. FPL said it will continue to reinforce local presence in key regional cities to drive management income as well as adopt an active portfolio reconstitution strategy.
Reiterate Add
We keep our FY24-25F EPS forecasts and maintain our RNAV at S$2.56 and TP at S$1.41 (45% discount to RNAV). Active capital deployment and improvement in its free float and trading liquidity are potential re-rating catalysts. Key downside risks: 1) slower value unlocking activities due to the weaker macro outlook, and 2) dampened demand for its logistics and industrial space could moderate its rental income growth.
