Frasers Property H1 profit rises 18% to S$275.8m on change in use of industrial properties
A "ONCE in a very blue moon" factor helped Frasers Property post an 18 per cent rise in net profit to S$275.8 million for the first half ended March 31, even as revenue fell 26.6 per cent to S$1.57 billion, from S$2.13 billion a year ago, as the group felt "the full brunt of the pandemic".
The rise in profit was mainly because of a reclassification of a portfolio of industrial properties in Australia and Europe - valued at about S$1.2 billion before the revaluation - from properties held for sale to investment properties.
The gain on the change in use represents the difference between the fair value at the date of transfer and its previous carrying amount. Excluding this gain, the net profit would have been just S$23 million.
Asked in its earnings call if there are other portfolios coming up for reclassification in the future, group chief financial officer Loo Choo Leong replied no, adding that the transfer is not done at the group's "whims and fancies", but because the assets were identified as "build-to-core", meaning they would be held for long-term returns.
"It arose due to a strategic shift for these assets to be held to core, rather than for them to be put on the market once they are completed."
The fall in revenue for H1 was largely due to poorer operating results from the group's hospitality properties amid widespread travel restrictions and lockdowns during Covid-19, as well as lower contributions from development projects in China, Australia and Thailand.
This was partly due to the timing of settlements of these projects. The group expects the unrecognised residential sales revenue of S$1.7 billion from projects in Australia, Singapore, Thailand and China to stream in over the next 12 to 18 months.
Earnings per share stood at 8.42 Singapore cents for the half year, up from 6.38 cents a year ago.
Frasers maintained the suspension of its interim dividend, in keeping with efforts to enhance financial flexibility. Mr Loo said that despite this, the group is not suspending payment of final dividends. Management plans to review the decision closer to the financial year-end, depending on the business outlook, company resources and financial results of the group by then. In FY20, it had paid a dividend of 1.5 Singapore cents per share, a drop from 6 Singapore cents per share for FY19.
Asked if Frasers Property might consider a similar restructuring to CapitaLand by privatising its development business to narrow its overall discount to book value, Group chief executive Panote Sirivadhanabhakdi replied that the group will be doing a review to see how it can unlock value.
This could be through shareholder engagement, creating longer-term value with a larger free float (for instance through its rights issue completed in April), or through "different platforms and vehicles" that allow the group to generate better returns to shareholders.
Shares of Frasers Property ended flat at S$1.20 on Wednesday, 56 per cent below its end-March net asset value of S$2.73.
The group also shared some of its upcoming development plans. For instance, following the completion of the Seaside Residences private condominium project in Singapore, which has been fully sold, the group is targeting to launch Parc Greenwich, a 496-unit executive condominium (EC) project in Fernvale Lane, Sengkang, in the fourth quarter of FY21.
It has also been granted provisional permission from the authorities to redevelop the recently acquired Bedok Point from Frasers Centrepoint Trust into a residential development with commercial units on the ground floor, although details about this remain sparse.
Mr Sirivadhanabhakdi said the group remains cautious about the residential market, and would try not to hold onto a land bank which would be a "drag" to its portfolio.
He said: "We are being very cautious when looking at land tenders. And we have enough pipeline as well in our view to sustain us in the next few years. We are looking at ways to also unlock the value of the land bank that we have as well." He added that the company would only launch projects that are "relevant".
It only has the Fernvale Lane EC site in its Singapore land bank; another project Rivière, located along the Singapore River, is targeted for completion in the first quarter of FY23.
Property developers with a huge land bank have historically been penalised with trading discounts for not realising the value locked in these tracts of land.
