The review is in its initial stages, according to the WSJ report.

THE majority owners of Frasers Property : TQ5 0% could put the company or some of its assets up for sale as part of a strategic review, reported The Wall Street Journal (WSJ) on Wednesday (Jan 10).

 

The review, which is in its initial stages, is part of shareholders&rsquo efforts to raise capital to help reduce the debt accumulated over the past few years as a result of acquisitions. That being said, there is no assurance of any outcome from the review, the report added, quoting people familiar with the matter.

 

The real estate group, which is listed on the Singapore Exchange&rsquo s mainboard, is trading at a third of its book value, while competitors such as City Developments Ltd : C09 -0.46% and UOL : U14 -0.48% trade at around half their book values.

 

It had total assets amounting to around S$39.8 billion as at Sep 30, 2023. In November last year, the group posted a net loss of S$74 million for the six months ended Sep 30, 2023, versus a net profit of S$741.8 million a year earlier.

 

The loss came as the group&rsquo s revenue fell 8.8 per cent to S$2 billion for the period from S$2.2 billion a year before. It was attributed to lower contributions from residential projects in Singapore and from projects in its industrial segment.

 

For the full year, net profit was down 85.9 per cent to S$123.2 million, while revenue rose 1.8 per cent to S$3.9 billion.

 

Around 72.4 per cent of its debts were fixed rate or hedged as at the end of September 2023. The average cost of debt on a portfolio basis, meanwhile, rose to 3.5 per cent from 2.7 per cent.

 

Analysts from CGS-CIMB and DBS Group Research have maintained their " add" or " buy" calls on Frasers Property TQ5 0.61% despite a 2HFY2023 net loss of $74 million, no thanks to fair value losses of $441.8 million.

 

Specifically, the company booked the losses for its UK commercial properties and also its Australia-based industrial and logistics assets, no thanks to higher cap rates amid an environment of higher interest rates.

 

The fair losses have brought its full-year earnings for the year ended Sept 30 to $123.2 million, down 81.3% from the preceding FY2022' s $928.3 million. Revenue in the same period was up 1.8% y-o-y to $3.95 billion.

 

Despite the lower earnings, Frasers Property plans to pay a heftier dividend of 4.5 cents, representing a payout ratio of 50%. For FY2022, it paid just 3 cents.

 

A team of DBS analysts, Derek Tan, Rachel Tan and Tabitha Foo, in keeping their " buy" call and $1.20 target price - pegged to a 60% discount to its RNAV of $3 - describe Frasers Property as an " unappreciated" developer.

 

They point out that Frasers Property is trading at a " remarkably cheap" valuation. For context, the value of its stakes in the various listed REITs already exceeds the current market cap of $3.1 billion.

 

Given its record low valuations of 0.3x P/B and 0.2x P/RNAV, it is deeply undervalued and an attractive privatisation candidate. 

 

" The market is assigning zero value to its solid track record as a developer of residential homes in Singapore and Australia, global industrial & logistics sourcing and development platform, and fast-growing hospitality business," the DBS analysts note.

 

The DBS analysts expect Frasers Property to enjoy a rebound in earnings for the coming FY2024, thanks to higher revenue recognition from its development projects in Singapore, China, and Australia, with presales of around $2.9 billion already made. 

 

The company is expected to see growth from its industrial, logistics, and commercial properties in Europe, UK, Australia, and Asean.

 

CGS-CIMB Lock Mun Yee, who has kept her " add" call on the stock, notes that Frasers Property is developing 17 new properties with a total space of 609,000 sqm in Australia and Europe, with an additional landbank of 2.4 million sqm, giving more room for further growth down the road.

 

Lock is also cheered by the improving hospitality portfolio, where RevPAR in Asia Pacific was up 60.5% y-o-y in FY2023 while Europe was up by a lower magnitude of 6.9%. Further growth is seen with recent acquisition of two premium rental apartments in Shenzhen and Osaka.

 

While Lock has trimmed her earnings estimates for the coming FY2024 and FY2025 to reflect changes in the completion dates of some residential projects in Australia, she has kept her $1.41 target price - pegged to a 45% discount off the RNAV of $2.56.

 

Both brokerages' analysts agree that there' s a positive point in the form of active asset recycling, selling assets into the listed REITs.

 

Due to unrealised fair value losses, Frasers Property TQ5 -0.61% (FPL) has reported a significant decline in earnings for FY2023. However, group CEO Panote Sirivadhanabhakdi remains focused on building a resilient portfolio for long-term returns.

 

&ldquo What this means to us is the need to build a business that can withstand the ups and downs of the property cycle and continue to deliver returns over the years,&rdquo he says.

 

For the year to Sept 30, earnings plunged by 85.9% y-o-y to $123.2 million. Without the fair value change, FPL&rsquo s profit before interest, fair value change, tax and exceptional items (PBIT) increased by 5.1% y-o-y to $1.31 billion due to higher contributions from its residential and hospitality businesses, as well as maiden contributions from the acquisition of a 50% stake in the mall Nex, located in Serangoon Central.

FPL, in recent years, has been actively building up its portfolio of investment properties to enjoy more recurring income, but FPL is keen on better returns that can be fetched from development activities, too. &ldquo We believe [this] can give a better risk-adjusted return to our portfolio,&rdquo he says.

 

However, FPL will be cautious and selective in choosing asset classes and geographies, prioritising earnings and cash flow visibility. It also emphasises that it will actively manage its assets for recurring income, including unlocking value where it makes sense.

 

FPL will also seek joint investors to be more capital-efficient on its investment properties. &ldquo [We will also] make capital available for development exposure [which] gives us a high value where it can deliver best risk-adjusted returns,&rdquo Sirivadhanabhakdi continues.

 

Fair value losses

 

At the same briefing, CFO Loo Choo Leong explains that the fair value losses had to be booked because of macroeconomic woes ranging from higher interest rates to inflation to geopolitical tension. &ldquo The real estate business is not spared the vagaries of these factors,&rdquo he says.

 

He also points to FPL' s year-end being Sept 30, which means it reports ahead of the other players whose year-ends are in December. There will be pressures on the values of investment properties.

 

&ldquo Cap rate expansions are happening across various markets, especially in places like the UK and Europe, where we operate. [This is] less in these parts of the world, but [it is] affecting us nonetheless. [This is also] coupled with higher interest expenses and our high debt to fund some of the acquisitions,&rdquo Loo adds.

 

Like many large property companies, FPL has been trading a significant discount on its book value. FPL&rsquo s shares, which closed at 82.5 cents on Nov 15, is a 67.3% discount to its NAV of $2.52 as of Sept 30. Year to date, the share price is down by more than 12%.

 

When asked, Sirivadhanabhakdi acknowledges that FPL is undervalued and aims to bridge the gap. Apart from expanding the portfolio size and improving the bottom line, he mentions divestments are always an option, as every asset has the right price. 

FRASERS Property : TQ5 -0.65% posted a net loss of S$74 million for the six months ended Sep 30, from a net profit of S$741.8 million a year earlier.

 

The net loss came amid an 8.8 per cent decline in revenue to S$2 billion for the period, from S$2.2 billion a year before.

 

In its results release on Friday (Nov 10), the company attributed the fall in revenue to lower contributions from residential projects in Singapore and from industrial projects in its industrial segment.

 

&ldquo These were partially offset by an improvement from the hospitality segment on higher occupancies and room rates, following the end of the pandemic and resumption of international travel, as well as higher contributions from residential projects in Australia,&rdquo the group said.

 

The group also recorded net fair-value losses of S$441.8 million for the half year, as compared to net fair-value gains of S$902.3 million in the same period last year.

 

These net losses were attributed to net fair-value losses from the group&rsquo s industrial and logistics assets in Australia, Europe and the UK, as well as commercial assets in the UK.

 

Loss per share for the half-year period stood at 1.9 Singapore cents, compared to earnings per share of 18.9 cents over the same period a year earlier.

 

For the full year, Frasers Property saw its net profit fall 85.9 per cent to S$123.2 million as revenue rose 1.8 per cent to S$3.9 billion. 

 

The directors have proposed a final dividend of S$0.045 per share, up from S$0.03 per share a year earlier. This is subject to the approval of shareholders at the company&rsquo s next annual general meeting.

 

The group said it continues to actively manage the impact of the rising cost of operations due to global inflationary pressures, as well as higher financing costs from the rise in benchmark interest rates.

 

It noted that 72.4 per cent of its debts were fixed rate or hedged as at Sep 30, 2023, and the average cost of debt on a portfolio basis has increased from 2.7 per cent to 3.5 per cent.

 

&ldquo As the group refinances debt moving forward, higher interest rates may continue to impact the average cost

of debt on a portfolio basis,&rdquo Frasers said.

FRASERS Property : TQ5 +0.65% is among Singapore-listed businesses affected by the fallout of a renowned Zimbabwean forest-conservation carbon-crediting project that has drawn flak for allegedly blowing up numbers related to its impact on halting deforestation.

 

The real estate group&rsquo s Australian unit had used the credits from the now-controversial Kariba project towards an initiative that allows homebuyers at its Minnippi Quarter development in Brisbane, Queensland, to offset the carbon emissions associated with the materials and construction of their homes.

 

The development, which has since been completed, comprises 172 terrace homes and 20 land lots.

 

When announcing this initiative, called Build Neutral, in December 2020, the company had said that half of the offsets that would come under the initiative would be from the Kariba project. The other half would be from an Australia-based regeneration project.

 

In response to queries by The Business Times, a Frasers Property spokesperson said that the group was made aware of the investigation into the Kariba project by Climate Active, which is Australia&rsquo s official carbon assessor.

 

The carbon assessor, which exists as an Australian partnership between the government and businesses to drive voluntary climate action, has since frozen applications from businesses wanting to use Kariba credits to offset their emissions.

 

Asked if Frasers intends to take remedial steps to make up for any shortfall in emissions reductions, the spokesperson said that Climate Active has indicated that it will make a decision on the eligibility of offsets from this project after the outcome of the investigation.

 

&ldquo We&rsquo re in consultation and will collaborate with Climate Active as needed throughout this process,&rdquo he added. 

 

The spokesperson did not reveal the number of Kariba credits used under the Build Neutral initiative, despite being asked.

 

Frasers purchased the offsets from South Pole, which was widely reported to be the world&rsquo s largest carbon consulting firm and the biggest trader in the voluntary carbon market.

 

Kariba was marketed by South Pole as one of the world&rsquo s first large-scale deforestation avoidance climate action projects. In fact, one of the group&rsquo s executive directors had described the project&rsquo s impact as preventing the annihilation of a forest nearly the size of Puerto Rico.

 

South Pole had on Oct 27 announced the termination of its involvement in the Kariba project, saying that it was no longer confident that the project met the standards it expected from its partners.

 

The group&rsquo s statement came in the wake of carbon offset certifier Verra pausing the issuance of credits to the project, while it carried out an investigation based on some serious allegations raised in an Oct 16 article by The New Yorker.

 

The Kariba project has issued around 36 million credits since 2011. Other companies known to have bought credits from the project include KPMG&rsquo s Australia business, which has been certified carbon neutral by Climate Action since 2019.

 

Frasers Property said it expects fair-value losses primarily on its commercial properties in the United Kingdom and industrial and logistics properties in Europe. 

SINGAPORE - Frasers Property expects to report a significant drop in attributable profit for FY2023 following fair-value losses on some of its investment properties.

 

The group said it is in the process of finalising valuations but based on preliminary results, it expects fair-value losses primarily on its commercial properties in the United Kingdom and industrial and logistics properties in Europe.

 

&ldquo Nevertheless, the group&rsquo s overall business performance and core operating earnings have not been significantly impacted as compared to the previous financial year, and the group expects to remain profitable for FY2023,&rdquo Frasers said on Thursday.

 

It will be releasing its unaudited financial results for the full year on Nov 10 after market close.

 

In its third-quarter business update released in August, Frasers noted that Europe continues to face headwinds due to the ongoing war in Ukraine, manpower challenges, higher energy costs and inflationary pressures.

 

For FY2022, Frasers posted a net profit of $871.4 million, 12.4 per cent higher than the previous year, due to the resumption of international travel as well as contributions from residential projects in Singapore and Thailand.

HIGHER contributions from residential developments pulled up first-half earnings at Frasers Property : TQ5 -1.13%, but the group will continue taking a prudent approach towards managing its residential pipeline.

 

On Thursday (May 11), Frasers Property posted a 52.2 per cent rise in attributable profit to S$197.2 million for its first half ended Mar 31, from S$129.6 million the year before.

 

Group revenue increased 15.6 per cent to S$1.9 billion for the six-month period, from S$1.7 billion a year earlier. Earnings per share (EPS) was S$0.0502 for the first half, up 51.7 per cent. No interim dividend was declared, unchanged from the previous year.

 

Frasers Property noted that its Singapore residential development business had benefited from increased sales of units and selling prices on a buoyant residential market.

 

All units in its 455-unit prime condominium Riviere have been sold as at Apr 30, 2023. Frasers has one other project on the market &ndash Sky Eden@Bedok. The project is being built on the site of Bedok Point, which Frasers Property acquired from its real estate investment trust Frasers Centrepoint Trust for S$108 million in 2020. So far, 128 units have been sold, or 81 per cent of the project.

 

Since Frasers&rsquo latest launch, however, the government has stepped up cooling measures to damp demand and rein in prices. Asked at the earnings briefing on May 11 for the company&rsquo s view on the market and if Frasers would replenish its land bank, chief executive officer of Frasers Property Singapore Soon Su Lin said: &ldquo Residential remains a key asset class not only in Singapore but also across the globe.

 

&ldquo Besides our strength in retail as well as mixed use developments, we will continue to evaluate good sites made available through Government Land Sales or en bloc opportunities, but of course we will remain prudent and disciplined in our approach.&rdquo

 

Frasers Property will continue to monitor its older properties, she said, and continue to optimise its current portfolio. 

 

Soon said the long-term outlook for the residential sector remains positive. &ldquo The inventory of stock of unsold units remains very low. There are more home buyers in the market than investors, and the credit profile of buyers remains strong.&rdquo

 

As at Mar 31, 2023, the group&rsquo s pre-sold revenue for its residential business amounted to S$2.9 billion.

 

DBS analyst Derek Tan noted that while overall results were good, Frasers&rsquo residential business is a &ldquo small part of its pie&rdquo , and hoped to see the developer being more active in landbanking.

 

Meanwhile, global easing of Covid-19 restrictions contributed to improved results for the group&rsquo s hospitality segment across various geographies, with profit before interest and tax for the segment increasing by 128 per cent to S$64 million.

 

However, the improved earnings from operations were partially offset by a net fair value loss, compared with a net fair value gain recorded in the same period a year ago.

 

Looking ahead, group chief executive Panote Sirivadhanabhakdi noted that macro developments, especially higher inflation, interest rate hikes, volatile foreign currency movements and potential asset repricing, will continue to pose challenges for the real estate sector. 

 

Responding to a question on how Frasers Property has consistently traded under book value and whether it would consider a dual listing in Thailand, Panote said the group&rsquo s portfolio consists of global assets but it is considering all options to unlock value. 

 

He added: &ldquo We definitely have been given advice by our investors and our shareholders as well on how we can create better liquidity and how to improve the pricing of our shares. My view is that at our management level, we continue to drive the bottom line and serve our shareholders.&rdquo

 

Net debt to total equity was 72.7 per cent for Frasers Property in H1 but this is &ldquo within the group&rsquo s comfort level&rdquo in view of its property assets mix, it said. 

 

Asked about plans to reduce debt, group chief financial officer Loo Choo Leong said: &ldquo We are constantly looking at ways we can de-leverage, but we are putting it in a context of how we&rsquo ve been able to grow our business as well.&rdquo

 

In a separate statement on Wednesday, Frasers Property said its wholly-owned subsidiary acquired Frasers Property Technology (Thailand) for 460 million baht (S$18 million) from Frasers Property (Thailand).

 

The group said the acquisition is part of its ongoing efforts to sharpen the focus of its strategic business, &ldquo gain direct insights&rdquo into the data centre business, and allow listed company Frasers Property (Thailand) to focus its resources on its core asset classes.

FRASERS Property : TQ5 -0.56%(FPL) has started the year off by showing, once again, that it is a good real estate investment trust (Reit) sponsor. But its minority shareholders may now want the group to turn its attention to the value of FPL&rsquo s shares.

 

On Feb 6, Frasers Centrepoint Trust : J69U +0.93% (FCT) and its sponsor FPL completed the joint purchase of a 50 per cent stake in Nex. FCT and FPL hold effective interests of 25.5 per cent and 24.5 per cent, respectively, in Nex.

 

Located in Serangoon Central, Nex is the largest mall in the north-east region of Singapore. It was bought at an agreed property value of S$2.08 billion, in line with its valuation as at end-2022, and a net property yield in the high 4 per cent region.

 

FCT is funding the purchase with debt and existing cash resources, and the deal should boost FCT&rsquo s distribution per unit. 

 

Post-acquisition, FCT&rsquo s aggregate leverage could reach 38.5 per cent. FCT&rsquo s manager would likely not want its leverage to go much higher than this. By partnering FPL, FCT grows its Singapore suburban mall footprint without overly stretching its balance sheet or needing to raise equity in an uncertain market.

 

Nex could be a good buy for FCT. Analysts from DBS Group Research and Citi Investment Research noted that buying Nex makes FCT the &ldquo largest suburban retail landlord&rdquo in Singapore, while diversifying its portfolio.

 

Yet, buying Nex may add little value for FPL&rsquo s shareholders. FCT may be a fairly efficient vehicle to hold Nex, but not FPL.

 

FCT and FPL are trading at discounts to their end-September 2022 net asset values (NAVs) of 7 per cent and 66 per cent, respectively, based on their closing prices on Feb 20 (Monday). Implicitly, FPL&rsquo s stake in Nex is being severely marked down.

 

FPL&rsquo s participation in the Nex deal is not the first time the property group has shown that it is a good sponsor of its listed trusts. Last year, FPL offered to privatise Frasers Hospitality Trust : ACV -1.05% (FHT) at above book value and at a large premium to historial trading price. That deal narrowly missed gaining sufficient support from the holders of FHT&rsquo s stapled securities.

 

Among property groups, FPL&rsquo s undervaluation is not unique. But FPL does trade at a steeper discount to NAV versus peers. GuocoLand : F17 -0.62% trades at a discount to end-2022 NAV of 57 per cent, and UOL Group : U14 -0.59% trades at a discount to end-June 2022 NAV of 45 per cent, based on their share price at the close of trading on Monday.

 

Distributing in specie a Reit

FPL needs to do more to create value for its minority shareholders. Perhaps it can put its Singapore commercial assets into a listed Reit to be distributed in specie to its shareholders.

 

Such a Reit could comprise 51 Cuppage Road, Alexandra Point, Valley Point Office Tower & Shopping Centre, as well as a 50 per cent stake in Frasers Tower in Tanjong Pagar. Based on book value as at end-September 2022, the said portfolio is worth over S$2.1 billion. FPL could add some overseas assets or a retail asset to boost the trust&rsquo s size. One of its retail properties is The Centrepoint on Orchard Road, which was valued at S$593 million as at end-September 2022.

 

Chairman Charoen Sirivadhanabhakdi and his spouse, Khunying Wanna, have a deemed interest of about 87 per cent in FPL. They can consider getting the entities that they have interest in, which hold FPL&rsquo s shares, to place out some of the Reit units that these entities will receive. This can help improve free float of the said Singapore-centric commercial Reit.

 

FPL is positive on growth prospects for Singapore&rsquo s office-property sector, given Singapore&rsquo s stable economic outlook, back-to-office momentum and limited new office supply in the pipeline. A Singapore-centric commercial Reit could be well received by the market.

 

FPL&rsquo s shareholders would gain if units of the new Reit trade at a far better NAV multiple versus FPL, as is likely to be the case.

 

Improving free float

Much blame for FPL&rsquo s poor share price can be placed on its small free float, which is 11 per cent, going by the latest annual report. The free float of UOL, which is a member of the Straits Times Index, is over 48 per cent, based on the latest annual report.

 

FPL is tempting for chairman Charoen and family to privatise. All of a high-quality business could potentially be bought at a discounted price. A privatisation offer may succeed with an offer price that represents a large premium to share price, but a big discount to NAV.

 

Still, it would be sad for stock investors here to see an established property name such as FPL exit the local bourse. Perhaps FPL&rsquo s board of directors can persuade chairman Charoen to improve FPL&rsquo s free float by having the entities linked to him place out their FPL shares.

 

Placing out shares at a steep discount to NAV hurts. But if placing out some shares improves FPL&rsquo s trading liquidity and share price performance, both Charoen and minority shareholders stand to gain.

 

FPL&rsquo s business looks to be doing fine. Recently, the group said in its business update for the quarter ended December 2022 that sales of residential projects in Australia and Singapore remained healthy despite interest rate hikes and inflation. FPL noted that its hospitality portfolio is positioned for recovery, with all properties reopened to capture demand as the industry rebounds from the Covid pandemic. But, better operating performance may do little to lift FPL&rsquo s share price.

 

With higher interest rates, investors&rsquo cost of capital has risen. Boards of all listed companies need to be mindful of this new reality. Addressing share price undervaluation has to be a top priority.

 

FPL&rsquo s latest annual report is titled &ldquo Leading With Purpose&rdquo . The group&rsquo s board of directors should lead in urgently unlocking value for the benefit of all shareholders.

 

CGS-CIMB Research analyst Lock Mun Yee has kept her &ldquo add&rdquo call on Frasers Property TQ5 -0.55%   with an unchanged target price of $1.41 after the group released its business update for the 1QFY2023 ended Dec 31, 2022.

 

In its business update, the group reported a &ldquo resilient&rdquo residential portfolio with healthy sales in Singapore and Australia. The group also noted its strong leasing demand for its industrial and logistics segment in Australia, Europe and Thailand.

 

&ldquo Meanwhile, its hospitality portfolio is well-positioned for recovery. Net debt-to-equity ratio stood at 70.2% and net interest cover of 3x as at end-1Q,&rdquo says Lock.

 

For the 1QFY2023, the group also reported a pre-sold revenue of $2.7 billion across Singapore, Australia, China and Thailand. The figure includes the group&rsquo s effective interest of joint operations (JOs), joint ventures (JVs), project development agreements and associates.

 

The &ldquo strong unbilled revenue&rdquo provides earnings visibility for the group, which is a plus in Lock&rsquo s book.

 

The group&rsquo s unbilled revenue for its residential segment stood at $1 billion as at end-December 2022 while its unbilled revenue in Australia came in at $1.2 billion, notes the analyst.

 

Frasers Property&rsquo s hospitality recovery, particularly in the Asia Pacific (APAC) region, remains intact. The group&rsquo s hospitality segment saw its revenue per average room (RevPAR) surge by 107.1% in the 1QFY2023 led by strong improvements in its room rates.

 

Following the update, Lock has lowered her estimates for the FY2023 to FY2024 by 6.95% to 8.45%. She has, however, kept her revised net asset value (RNAV) estimate at $2.56. Her target price is still based on a 45% discount to RNAV.

 

&ldquo Active capital deployment is a potential re-rating catalyst,&rdquo she says. &ldquo Downside risks [are] slower value unlocking activities due to the weaker macro outlook,&rdquo she adds.

FRASERS Property on Wednesday (Feb 8) said it achieved pre-sold revenue of S$2.7 billion across Singapore, Australia, China and Thailand in its first quarter ended Dec 31, 2022.

 

Sales of residential projects in Australia and Singapore remained healthy despite rate hikes and inflation, the company announced in a business update.

 

In Singapore, it sold 50 units in Q1, with unrecognised revenue amounting to S$1 billion, Frasers Property said, noting that sales of launched projects continued to strengthen despite property curbs introduced in December 2021 and September last year.

 

So far, it sold 90 per cent of Riviere units with Temporary Occupation Permit attained on Jan 17, as well as 77 per cent of Sky Eden@Bedok units with a target completion in the first half of FY2026.

 

All units of Parc Greenwich executive condominium units were sold within nine months from launch, with completion slated for the second half of FY2024.

 

Frasers Property&rsquo s residential business in Australia also remains resilient, the company said, supported by high levels of contracts on hand and a broadly supportive market environment. It sold 219 units in Q1, with an unrecognised revenue of S$1.2 billion.

 

The company also achieved positive sales traction across the business with key sales contributions from Mambourin, The Grove and Five Farms in Victoria, as well as Baldivis Parks in Western Australia.

 

As for Thailand, the firm sold 1,166 units with unrecognised revenue of S$30 million. As at Dec 31, it had 73 active projects.

 

The number of units sold in China stood at 379, while unrecognised revenue was S$500 million.

 

Looking ahead, Frasers Property said that its hospitality portfolio is positioned for recovery, with all properties reopened to capture demand as the industry rebounds from the Covid-19 pandemic.

 

Net gearing ratio stood at 70.2 per cent as at Dec 31, and the company said that it is well-positioned to repay or refinance all debt due in FY2023.

 

Net debt rose 5.4 per cent to S$13.2 billion as at Dec 31, compared with end-September.

PLENTY of ink has been spilled about the hospitality sector rebound following China&rsquo s relaxation of border restrictions to restrict the spread of Covid-19.

 

To a lesser &ndash though still significant &ndash extent, the retail sector has also been touted as one of the key beneficiaries of an impending influx of Chinese tourists.

 

But investors should not overlook the resilience and potential upside of Singapore-listed real estate investment trusts (S-Reits) in the industrial space.

 

In a recent conversation with a Reit manager, I was reminded about how challenging it is for S-Reits in the industrial sector to make the news &ndash unless for the wrong reasons.

 

For one, most industrial properties are tucked in the lesser-visited parts of Singapore: Tuas, for instance, or Changi. For retail investors, out of sight often means out of mind.

 

Besides, the acquisition of a ramp-up logistics property &ndash no matter how state-of-the-art it is purported to be &ndash would struggle to capture the imagination compared with a more familiar hotel or shopping mall.

 

Consider, for instance, the recent sale of a portfolio of heartland mall properties by NTUC unit Mercatus.

 

The Singapore market was abuzz as Hong Kong-listed Link Reit snapped up Mercatus&rsquo Jurong Point and Swing By @ Thomson Plaza retail assets, while Frasers Centrepoint Trust : J69U -1.32% (FCT) and sponsor Frasers Property : TQ5 -1.1% (FPL) teamed up to buy a 50 per cent stake in Nex.

 

It was probably less exciting to hear that Mapletree Logistics Trust : M44U -1.7% (MLT) was selling two warehouses in Malaysia and a property at Changi South Lane.

 

Yet, some industrial S-Reits prove their resilience last year. And it would be foolish to overlook their place in a well-balanced portfolio.

 

Credit Suisse noted in a research report that prices and rentals of industrial properties in Singapore rose for the ninth consecutive quarter in the fourth quarter of 2022 ended December, gaining 2.1 per cent quarter on quarter or 6.9 per cent year on year.

 

While rental reversion is forecast to moderate in 2023 due to softer economic and manufacturing growth momentum, large-cap industrial S-Reits with well-diversified portfolios and prudent balance sheets could continue to be favoured for their defensiveness.

 

This year, the expectation of a slower pace of interest rate increases has been a key catalyst for the S-Reit market.

 

The iEdge S-Reit Index posted total returns of 7.1 per cent in January &ndash double that of the benchmark Straits Times Index (STI), which generated total returns of 3.5 per cent for the month.

 

More than half of the dozen S-Reits with industrial assets did at least as well as the iEdge S-Reit Index, while all but three outperformed the STI.

 

The industrial S-Reits that are also constituents of the STI &ndash Frasers Logistics & Commercial Trust : BUOU -1.47%, MLT, Mapletree Industrial Trust : ME8U -1.24% and CapitaLand Ascendas Reit : A17U -1.33% &ndash all outpaced the benchmark index in terms of total returns.

 

The top performer among the S-Reits with industrial exposure was CapitaLand China Trust : AU8U -2.4% (CLCT), a diversified S-Reit whose China-focused portfolio mainly comprises retail assets but also includes business parks and logistics parks properties.

 

For the second half ended December, CLCT reported a 24.4 per cent drop in distribution per unit (DPU). Gross revenue and net property income (NPI) fell 8.6 per cent and 11.8 per cent, respectively.

 

While its retail malls segment was shaken by Covid-related disruptions in China, the Reit manager noted that its business parks and logistics parks segments showed positive year-on-year performance for the full year.

 

Another top industrial S-Reit performer was Aims Apac Reit : O5RU -2.17% (AA Reit), which achieved total returns of 10.5 per cent in January.

 

For its Q3 ended December, AA Reit recorded a 10.2 per cent increase in DPU on the back of a 14.1 per cent growth in gross revenue and a 14 per cent rise in NPI.

 

Despite potential macroeconomic headwinds and market volatility ahead, the Reit manager said the near-term outlook for Singapore&rsquo s industrial market will continue to be supported by favourable demand and supply dynamics.

 

FRASERS Property : TQ5 -1.08% on Friday (Jan 13) announced new chief executives for business unit Frasers Hospitality, and the managers of its real estate investment trust (Reit).

 

Eu Chin Fen, the chief executive of the managers of Frasers Hospitality Trust : ACV +1.11%(FHT) &ndash namely Frasers Hospitality Business Trust (FH-BT) and Frasers Hospitality Reit (FH-Reit) &ndash has been appointed as chief executive of Frasers Hospitality.

 

Eu will be responsible for the group&rsquo s hospitality business unit, which is currently led by Frasers Property group chief executive officer Panote Sirivadhanabhakdi.

 

She was previously the chief investment officer of Frasers Hospitality International from July 2019 to April 2021 and joined the group in 2011.

 

Eric Gan, current chief financial officer (CFO) of FH-BT and FH-Reit, will succeed Eu as the chief executive of the managers.

 

Gan will be responsible for the overall business, investment and operational strategies of FHT, FH-BT and FH-Reit, and will work closely with the boards of the managers.

 

Before joining the managers, Gan was the CFO of the OUE Hospitality Reit&rsquo s manager and Meritus Hotels and Resorts (Hospitality Division) of OUE.

 

Liu Qingbin has also been appointed as head of finance of the managers and will report to Gan. He will be responsible for the financial and capital management of the Reit.

 

Liu was the senior vice-president of Sabana Shari&rsquo ah Compliant Industrial Reit&rsquo s manager prior to joining the managers.

 

Panote said that the appointments reinforce the effectiveness of the company&rsquo s executive development and is part of its strategic talent and succession planning.

 

Frasers Property, on Dec 17, announced that it will not be redeeming the $300 million fixed-rate subordinated perpetual securities on the first call date on Jan 17, 2023.

 

The Series 003 securities were issued by Frasers Property Treasury and guaranteed by Frasers Property Limited under its $5 billion multicurrency debt issuance programme.

 

According to the group, the decision to do so was influenced by the issuer&rsquo s longer-term interests and the current macroeconomic and interest rate environments. In addition, the decision was attributed to the diversification of sources of funding as well as the current market conditions for the issuance of similar yielding perpetual securities.

 

The distribution rate of the securities will only be eligible for reset on Jan 17, 2028, and each date falling every 10 years after the first reset date.

 

If the perpetual securities have not been redeemed, the distribution rate will be reset on the first reset date to the reset distribution rate, which will include the initial spread and step-up margin.