Frasers Property Limited (TQ5) Earnings Call Transcript & Summary

So our presenters for FPL's full year results briefing for FY '22 today are FPL's Group CEO, Panote Sirivadhanabhakdi; and Group CFO, Loo Choo Leong. Following the presentation, leaders of the group's business units will join the panel for a Q&A session. Please allow me now to pass the time to Panote to start today's presentation. Panote, please?

Thank you, Gerry. And good morning, ladies and gentlemen. Thank you for joining us today for the briefing. So let me briefly touch on FPL financial performance for FY '21, and Choo Leong will go through the results and financial in more detail later. As you've seen, the spotlight is definitely on industrial, and it's continuing to be significantly resilient to the group financial performance for FY '21, and it definitely benefit from the sector tailwinds. As you've seen on the other hand, the several business segments remain affected by pandemic, especially Hospitality business. Performance of our Hospitality property remained well below pre-COVID level. But however, there are some sign of gradual recovery in occupancy and room rates, particularly in the market with the domestic tourism. And in part of many of the assets in U.K. now start to recover quite well. Regarding all of that, to what it is seen, the uncertainty around global economic recovery still being lays to the transition of part to evolve into endemic of COVID environments. And hence, our position is to be very prudent still on capital and liquidity management. So in keep of the group efforts in maintain financial flexibility, our Board has decided to propose the first and final dividend of SGD 0.02 per share for FY '21. If I may goes into laying the thoughts on how we strengthen our platform and build our capability for sustainable growth to ensure that we have the right aptitude and fortitude rise through the challenge in the operating environment. So we have strong foundation on good people, sound organizational structure and process, as well as relevant and quality offerings. Our robust performance has been critical to our ability to navigate through business challenge and maintain portfolio resilience. Even though as we all know, real estate is a cyclical in nature, to ensure our business platform are always ready to capture and lays to the suitable growth opportunity when the market dynamics are right, we continue to invest in the capability and technology. Being purpose-led organization, sustainability is the core part of our agenda. And we are able to put our full effort now as well to see the integrated sustainability to all aspect of our business and operation as well. Through digitization and the use of technology, we strive to equip our people with the necessary skill and the tools so that we can do the job better and enable sustainable innovation into the fast-changing environment. Importantly, we want to be able to enable our business to keep evolving and ensure our offering are relevant and customer-centric. So of course, given the capital-intensive nature of the industry, we cannot maximize the potential of our business platform without significant capital. As such, capital management has been on the high priorities. So I will elaborate on this point in the next few slide. In this slide here, as I mentioned earlier, that our business platform allow us to be ever ready to take advantage of positive market dynamic and capture opportunity that arise. We see that this important competitive advantage, as history has shown, each property asset class has its set time in the sun. Our job is to ensure we are ready to take advantage of opportunity when they come. So we can do so if you have the right capability, the right focus and relevant scale. And this does not happen overnight. Case in point, in our industrial and logistic platform, from the time we extend our capability to the industrial portfolio in 2004, we have taken deliberate steps to build our industrial logistic platform into a scale we have come across geographics today. And likewise, our commercial business park asset class, we have reshaped, outgrow our portfolio through a series strategic initiatives, and notable on our entry into U.K. Business Park in 2017. As pandemic accelerates in many structural trends, particularly the shift towards e-commerce and evolve our workplace expectation, as a result of year of effort, we have been building and speaking into the insight of the future work, as much as also the trend and the tailwinds of industrial and logistic asset class. We have healthy development pipeline which will deliver further growth, both in our industrial logistic and commercial investment property portfolio. And our ability to create value through development, in addition of acquiring, operating our assets and recycle our capital, is an important differentiator for our capability within the group. So in FY '21, we complete around 313,000 square meters of development projects. And we currently have a development pipeline of around 663,000 square meters of industrial and commercial projects to deliver over the next 2 financial years. As the next slide, we've shown across our business platform. The focus for us during the difficult time is to actually elevate our level of rigors and discipline to drive the returns for our portfolio. So overall, our investment property has been resilient due to the diversified exposure across asset class, geographics and customer base as well. And to support industrial and logistic development pipeline, [ brought ], our investment property portfolio, we have replenished about 1.3 million square meters of land bank in FY '21. And around 1/3 of that is from industrial site as well in Bin Duong, Vietnam, and it's our first industrial projects in Vietnam. In additional to development projects, we have the options of progressively unlocking embedded development value both in U.K. business park portfolio when the market condition are right and of its specific demand are set. We have total around 100,000 square meter of development area spread across 3 business park, are in Chineham, Winnersh Triangle and Hillington Park. And at Hillington Park, we have now commenced a redevelopment of 12,000 square meter of industrial scheme. On Singapore suburban mall, portfolio has remained resilience to the various phase of COVID control measure. We have been providing target assistance of tenants adverse effects by measuring on top of going tenant support initiative. Quality of suburban mall retail space remain in demand by the retailer, and our portfolio is well positioned to benefit when restriction is eased. In hospitality, it's remained challenged better. We hope that the country will increasingly open to quarantine-free air travel and mall vaccinated travel lanes will be introduced. But it will be some time before global travel fully resume, Meanwhile, our strong long stay corporate and domestic travel base provide a degree of sustainability. While we optimize our cost structure, further invest in our operation resilience on enhancing agility and market dynamics, we are seeing that the slow improvement is happening. We are continuing to execute on recovery plan, center around capturing and maximizing return from the pocket of demand as well as sharpening focus on customer experience and service excellence. We have been seeing encouragement result in U.K. other than hotels, in major cities that are more dependent on business traveler. Our [ MSVB ] portfolio achieved improvement rates and high occupancy level after the U.K. ended domestic lockdown restriction in July 2021. So focusing on the next slide on residential development. We have seen a strong part of our business, continue to focus on development income as well. And in the range, we allowed us to deliver complex large-scale and master plan projects. In many of these mixed-use projects, residential development is an integral part, both in return, but also in our view of customer-centrics and integrated solution to the market as well. So we have always adopt a prudent approach, choosing to focus on deeper part of the market where underlying demand is robust. Most recently, in Singapore, our partnering which executive condo was the best-selling EC launch this year to date. And this has enable us to achieve steady sales activity and sustaining health level of unrecognized revenues, provide earning and cash flow visibility. Our settlement front, we have been actively managed to deliver our residential projects amid operational challenge. Over the course of FY '21, we achieved settlement of around 5,600 units across our market. We have selectively replenished our residential pipeline as well in Australia, where the group has currently -- has the largest residential exposure. By the end of this month, we will complete the acquisition of over 260,000 square meter of land bank, adding an estimate of 1,100 units of residential pipeline, and this on top of our first build-to-rent development in partnership with Queensland government. As with this is the rest of our business, investing in capability, cultivating innovation is creating our resident offering to remain relevant to our customer. In Singapore and Thailand for example, we have been working on developing homes with adaptable space, especially relevant now with the increase of hybrid work, study and work from home needs. In Australia, we have been implementing industrial-leading sustainability initiative. In our resident projects, in fact, we are now targeting 6-star green community ratings for our current residential development, Midtown MacPark. And all energy used in the building will be carbon neutral from completion of the first building. This has led me to share with you during the difficult years we have been putting a lot of work for building our future-ready capability. And investing in the capability and cultivating innovation is a key priority to us, and that -- it's including investing heavily in technology and digital, and center on enhancing customer experience, building better securities and agilities to our back end. It has delivered better business outcome, improving productivity, and protecting our data and our system. We are equally focused on creating place for good. Mastering in life cycle value of great asset is already a fundamental aspect of our strategy. Connecting our strategy with our sustainability aspiration is needed for Frasers Property to play a meaningful role in the circular economy. And on this slide, there are just some example of where we are investing in our efforts. And as you've seen, we are making a big step into sustainability as a core part of our DNA. This is timely topic as COP26, the UN Climate Talk which is happening in Glasgow. And climate change impacts everyone, and we are paying close attention to the discussion at COP26. Frasers Property aim to rise sustainability ideas and our performance across the value chain. And we believe doing so, building greater resilience and better management is a core part of our business. Core to our sustainability goals, in our 2050 net 0 carbon goal, to date, our [ less vehicle ] are the only real estate entity on the Singapore Exchange to make commitment towards tackling all the 3 scope of carbon emission, with the business practice and process aligned to interim target based on science-based approach to provide a clear, defined path, the company, like our reduced emissions, in line with COP21 Paris Agreement goals. Not only that we will monitor directly reducing and offset carbon emissions from owned or controlled source, but we are also examining emission generated indirectly as a result of our business. Whatever outcomes, I agree, at COP26, we continue our work across a range of sustainability areas, include a focus on sustainability and innovation that are materials to deliver long-term value to our stakeholder. Meanwhile, we are pleased to let you know that our going effort towards sustainability has been recognized. And in 2021 gas-free results, the group achieved 5 global and regional sector leadership position. This encourage result reflects our deep commitment towards achieving our key sustainability goal, which you will see in this slide. And that's the highlight, some of this process here. And you will be able to see more to the video clips as already shown earlier today -- earlier on the meeting as well. To effectively manage our capital, into the next slide here, the REIT asset, as mentioned earlier, it is a capital-intensive industry. And to maximize value generated from our platform and capability, we need a strong capital base and diversified capital structure to allow us to scale up and embark on the new opportunity whenever timing is right. We continue to take proactive actions to optimize our capital structure. And as we have completed the right issue in April, rising proceeds of $1.16 billion. This will essentially allow us to fund our development pipeline and to keep us increasing exposure to industrial logistic and commercial business park asset as well. Tapping into the rise of advertise for green and sustainable financing, we continue to expand our green or sustainable financing portfolio. Beyond diversifying our funding source, as mentioned in earlier slide, sustainable financing is the pillar of our sustainability strategy. And in September, we issued SGD 300 million of sustainability linked notes. This bring the group total gross green or sustainability financing rise since the first green launch in September 2018, now accumulate to over $6 billion. In addition now, active managing of our funding, our REITs platform is a key leverage in the group capital management framework. And we continue to recycle capital to REIT platforms in FY '21. And as the group REIT platform strengthened, it enhanced flexibility to drive growth of AUM and the retail level of our group. In the recent month, FLCT received an investment-grade rating from S&P and was included in the constitutional in STIs. Elevating the REIT profile and appeal among investor, and meanwhile, following its acquisition of ARF portfolio of FCT, has been working, reconstituting its portfolio to optimize the composition and return. In the part of what we have gone through to this COVID has allow us to recapture the focus that we are moving towards the strategic of looking at 3-pronged approach. And that is to be able to execute in line with our managing of the portfolio and aim to generate sustainability growth to the long-term shareholder value. As you've seen, we are looking at earning growth portfolio and capital productivity to best optimize our people, our platform and our bottom line. As a result, this next slide here is the snapshot of our portfolio performance of FY '21. And we have achieved a lot through journey of challenge and market difficulty as well. Even the business continued to impact and start to the lockdown in the country that's facing COVID-19 outbreaks, the results has shown, in my view, the great efforts from the team and the part of us tightening down the cost, looking up to be able to retain our tenants, working to gather our new customer and grow our customer value, together with the group initiative and innovation as well. And Choo Leong will go through breakdown in the business later. I would like to also share with you on enhancing our business resilience and build our future ready. In looking ahead, we still focus on health, safety and well-being, remaining our top priorities even as adopting coexist with COVID as being part evolving and transition into endemic. So for the next 24 months, our business priority will focus on establishing the foundation to improve our portfolio return. This means improving investment discipline, ensuring that we are [ sweat ] our existing asset hard to control the growth income and unlock value where it makes sense. In the organizational development and effectiveness as we continue to enhance our operational and improved productivity and efficiency, develop our workforce for the future readiness will be the key consideration. We also continually see the value in diversifying. Within Frasers Property, we want to take advantage of our strength across our multinational networks to build a resilient and sustainability of the business. This include tapping asset class capability to complement existing geographic platform. For example, we see a lot of opportunity from e-commerce and the future of work trends within the industry of commercial business park asset. Important, we're also evolving our sustainably long-term business. We are guided by our purpose of inspiring experience, creating place for good, while we lays the foundation of our future ready. This means further developing organizational capability on tech and digital and evolve ourselves holistically on ESG and innovation. These are the key of FPL in investing. We will benefit from a better responsible disruption and better efficiency and customer satisfaction. Meanwhile, we will continue growing our exposure to industrial and logistic and commercial business park asset by maintaining healthy development pipeline. And this will position Frasers Property to carry on capturing opportunity from e-commerce and future of work trends. And finally, we will continue to execute our strategic action plan and strengthen our group foundation and deliver sustainable and improve of our return, while of course, the continue of growing future-ready business. So thank you for listening. And I would like to hand over to Choo Leong to share through some more detail of financial highlight. Choo Leong?

Thank you, Panote. Good morning, everyone. I will now cover the results and the financials. Relatively speaking, we've improved -- in a decent year, we've improved from the previous financial year, primarily boosted by the strong performance of our industrial and logistics asset class, which was partially offset by the hospitality, as Panote has mentioned earlier, which continue to face the headwinds from the Panama, and the luckiness of our residential business for us, primarily from Thailand and China. There's a strategic shift in the financial year FY 2021 arising from the rights issue as well. We have built up [ watchers ] to continue to build our portfolio for industrial and logistics. And as a result of that, there was a onetime accounting gain when we transferred assets which were previously held as inventories into investment properties. So that further boosted our results as well. This happened in the first half of FY '21, and we have announced that it's part of our half yearly announcements. Generally, across our investment properties, there was a higher net value gains across primarily from our industrial and logistics properties. And that brought our attributable profit to $833 million, on the back of higher revenue, PBIT, as well as attributable profit before fair value and exceptional items. I will go through the breakdown of PBIT performance by our business units. Generally, across the board, for the residential business, there would be -- we experienced the lumpiness due to settlement timing. So in terms of Thailand as well as Australia and Singapore, you would see that there are different -- there are drops and increases mainly because of the lumpiness. Hospitality, of course, experienced lower contribution compared to the previous financial year as an impact on the pandemic. It felt the full brunt of the pandemic in FY 2021, whereas in FY 2020, it wasn't for the full year financial year. Industrial, of course, recorded a very high increase in PBIT, but that included a gain -- the onetime gain that I mentioned, which we gave color in the first half. Moving on. When we look at our asset classes, our -- 88% of our property assets are in recurring income type of asset classes of industrial and logistics, commercial and business parks, hospitality and retail. So that provides a certain level of consistency relative to the lumpiness for residential that we've mentioned earlier. In terms of the types of income, the recurring income makes up of 68% of our group PBIT for the year. If you were to take out the onetime impact of the change in use that I mentioned earlier, the proportion would rise from 68% to 90%, whereby our operating income was from recurring. Onwards to the geographical mix. Our top 3 markets, Singapore, Australia and Europe, and combined, they make up 84%. Not far behind is Thailand. Thailand, we have 4.3% of our property assets in Thailand, making up 13% of the total. And 83% of our PBIT was generated from the top 3 markets that I mentioned earlier. I'll spend a little bit more time on our balance sheet. Boosted by the recycling of our 63.11% stake in ARF in October 2020 when we recycled the FCT as well as the rights issue that was completed in April 2021, our net gearing stood at 73.7%. And that's lower than the 105% as of 30 September 2020. If you were to look at net debt for property assets, it has gone down to below 40% as compared to 47.8% in the last financial year. So with a strong cash balance of $3.8 billion and a lower net debt arising from the -- our capital management strategies, as mentioned by Panote earlier, this continues to be a high priority for us. And we have always had a track record of taking proactive actions to optimize our capital structure whenever it goes closer to the sun. Of course, these numbers reflect just one point in time. What is most important is the ability to continue to manage our net gearing well even as we prep ourselves for opportunities that would potentially come into place. In terms of debt maturities, that's another area that we are very focused on. You might notice the higher bars for FY 2022, but we -- that's part of the maturity profile of the lowest invoice that we had earlier. We are well prepared and have ample resources to finance our FY 2022 debt as and when they become due. In terms of liquidity as well as undrawn lines, we have more than enough even just to repay these debts for FY 2022. On top of that, we do have ongoing pipeline work in progress to actually refinance the debt falling due in 2022. In general, we will continue to ensure that we smoothen the profile of our debt maturity so that there's no large towers for any particular year. And that progress is well underway. Recently, we raised a $300 million sustainable notes for 7 -- around 7 years. So this are part and parcel of our efforts to ensure that our debt maturity profile remains at reasonable levels. We have also done work in ensuring that, with inflation talks on the horizon already here, ensuring that our debt are covered. From a interest rate fluctuation perspective, 75.4% of our debt are fixed, either in terms of fixed instruments or taken up for interest rate swaps. That's higher than the 61.8% as of 30th September 2020. Our weighted average debt maturity remains stable, around 2.4 years. That -- we'll have plans to increase that as we take on refinance with longer-term debt. That's our strategy. Our overall cost of debt remains stable at 2.3% per annum. So this is one important area that puts us in a strong position to navigate our opportunities going forward. The last item I will cover relates to dividends. Our Board has recommended, for shareholders' approval, a first and final dividend of SGD 0.02 per share. Now that's higher than $0.015 that was announced for FY -- that was paid for FY 2020. The payout ratio based on core earnings, which is attributable profit before fair value and exceptional items, which are a lot more mainstream, stood at 20%, which is similar to the 19% in FY 2020. As mentioned earlier, our attributable profit was boosted by a onetime gain -- sorry, our core earnings was boosted by a onetime gain from a change in use for our industrial and logistics asset transfer from inventories to investment properties. If you were to take out that part out of the equation because it is onetime, the payout ratio based on core earnings would have risen to 31%. Our Board has taken a conservative approach. The world went into the woods in early 2020 because of the pandemic. And while there are various debates, I think, generally, we can all say that we are not out of the woods yet. And it would do us well to ensure that we continue to be conservative. But we will continue to monitor our business environment. And we are confident our Board will continue to calibrate our dividend payments accordingly going forward.