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.