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Setting FCL on a long-term growth path
FRASERS Centrepoint Limited (FCL) chief executive Lim Ee Seng was handed a tall order to double the group's net profit within seven years when he joined as group CEO in 2004. The market was in the doldrums, with FCL facing a pile of unsold residential stock that was long completed.
But within a span of five years, Mr Lim managed to double the net profit of FCL, then the property arm of conglomerate Fraser and Neave (F&N), from S$170 million to S$340 million. The unsold inventory of over 1,300 residential units were also sold within two years after the group offered moderate price discounts, coupled with interior design, deferred payment scheme and minor adjustments of layout.
Not one who would rest on his laurels, Mr Lim made a tough call for the group to diversify away from the lumpy development business in the face of what he saw was a "bubbling market". This was soon after the group had met its earnings targets on the back of some highly profitable development projects.
"Our earnings were about 70 per cent development profit and 30 per cent investment income. For a real estate company to be sustainable, we must have a sufficient recurring income base because development business is very cyclical, so you have famine and feast if you are too dependent on development income," Mr Lim told BT.
Back then, FCL only had a small overseas exposure to the UK and Australia.
Mr Lim had to convince the board of the need to restructure FCL's business model from one that was Singapore-centric and reliant on development profits to a more diversified company with strong recurring income.
FCL was able to do so by ramping up fee income from hospitality management and investment properties, acquiring Australand, and setting up a capital recycling platform through real estate investment trusts (Reits).
It now derives close to 70 per cent of its earnings from recurring income and the other 30 per cent from development profits. More than half of its overall profits come from overseas sources.
Looking back at how FCL has grown from a S$5 billion company in asset size to over S$23 billion, Mr Lim would only attribute its success to its senior management, stressing that "a company is only as good as its people".
NOT GOING WITH THE FLOW
"Sometimes, in real estate, you have to be stout-hearted," Mr Lim said. "When you see the masses moving and you're not moving in the same direction, it takes a lot of guts to take the risk and not go along with the crowd."
This explains why FCL has been more conservative in bidding for development land in Singapore as land prices surged after the Global Financial Crisis. It clinched only three of some 30 tenders that it took part in over the last three to four years. "The previous board used to say that there's no prize for being second. Now, they say 'thank God we're second'.
The group also proceeded cautiously with its Reits platform, after obtaining the green light from the board whose traditional preference was to hold onto hard assets. This has become a sustainable model of freeing up cash from fixed assets for re-investments, which are in turn injected into the Reit eventually for recurring fee income, he said.
FCL saw its first Reit listing Frasers Centrepoint Trust (FCT) in 2006. Two years later, F&N acquired a 17.7 per cent stake in Allco Commercial Reit and all of the Reit's manager, and rebranded the Reit as Frasers Commercial Trust (FCOT). FCL now has a 27.1 per cent deemed interest in FCOT. The third and fourth Reits sponsored by FCL were listed in 2014 and this year.
In its bid to shore up overseas contribution, FCL's hospitality arm witnessed rapid growth, from less than 2,000 units under management to the current 22,800 keys in 139 properties across more than 80 cities.
Mr Lim pointed out that Central Park, a rejuvenation mixed-use scheme that the group is jointly developing with Sekisui House Australia on the former Carlton & United Brewery site in Sydney, as well as the Putney Hill, a medium density development on the former 14-hectare Ryde Rehabilitation Hospital site, have also raised the profile of FCL in Australia.
NEXT GROWTH PHASE
The entry of TCC Group - controlled by Thai billionaire Charoen Sirivadhanabhakdi - as a new major shareholder of FCL following its S$14 billion buyout of F&N in 2013 also marked another phase of growth for FCL, this time fuelled by fresh equity injection and the strong backing of the Thai conglomerate.
A flurry of corporate activities ensued. In 2014, FCL was spun off as a separate listing by way of an introduction. FCL went on to list a stapled trust, Frasers Hospitality Trust, that same year starting with six serviced residences from FCL and six hotels from TCC Group.
Also in 2014, FCL acquired Australand in a takeover, adding a portfolio of investment properties worth some A$2.7 billion and beefing up its presence in Australia, a core market for FCL outside of Singapore.
"We have all the while been interested in Australand," Mr Lim said. But CapitaLand was apparently not prepared to sell all of its stake in Australand at the time it was approached by FCL, though the former later had a change of mind when it placed out its remaining 39 per cent stake in Australand after a 20 per cent stake sale in an earlier placement.
"What we like about Australand is its management team," Mr Lim said. "We did not change the management team and only installed a board chaired by its previous chairman Olivier Lim."
Last month, FCL listed its fourth Reit, Frasers Logistics & Industrial Trust (FLT), which holds some Australand assets for a start. Given its global mandate, FLT could potentially look at acquisitions in other parts of Asia, such as Thailand and China. "The listing ceremony at SGX for FLT was an emotional moment for me," Mr Lim quipped. "It's putting the feather in the cap for me."
Unknown to many, Mr Lim's slew of lofty achievements are rooted in humble beginnings. Son of a kampung school bus driver, he grew up wearing his school uniform wherever he went because he had no money to buy casual clothes. As the eldest son and third child in the family, he had to support his family and siblings financially when his dad passed away.
Still, Mr Lim managed to put himself through a part-time masters degree in project management at the National University of Singapore that gave his career a shot in the arm. From project manager at Singapore Land, he moved on to First Capital Corporation (now called GuocoLand) where he became general manager of the property division. In 1996, he joined MCL Land as managing director before joining FCL in 2004 as CEO.
Two weeks before FLT's listing, Mr Lim announced his retirement with effect from Sept 30 and that Mr Charoen's son Panote will be taking over the reins of FCL as CEO.
"When I hit 62, I told the F&N board that I wanted to retire, but I was told to stay on for one more year," Mr Lim revealed. "But before that one year was up, the company was taken over by TCC, so I approached the board again, saying that since the entire board is changed, it's a good time to change the CEO as well. But the board said that if I go, the whole management team may walk out. So I agreed to stay another two years. The FCL board is very gracious to allow me to go finally."
With a larger asset base and the backing of a strong shareholder, FCL is expected to run even faster, Mr Lim said. "The new CEO is young and energetic, so he should be able to run well with the baton."
Though Mr Lim is planning to spend more time on golf, personal travels and his four-year-old twin grandchildren, he is not entirely fading from the corporate scene. In fact, he is taking on a new role as senior adviser to the TCC Group, whose businesses range from food and beverage to trading, agriculture and real estate.
Being one of the largest land owners in Thailand, TCC will be tapping Mr Lim's expertise as it starts to develop some massive land parcels. Mr Lim said he is on the advisory committee for the "Suan Lum project" along Wireless Road in Bangkok, which will be developed into a mixed development spanning 12 million sq ft in gross floor area. Asked if there will be any chance for FCL and TCC to work together, Mr Lim said: "We have no agreement in this regard, but who knows."