FPL’s metrics are still “within acceptable levels” but the management remains focused on deleveraging and ensuring capital efficiency, says group CFO Loo Choo Leong at the results briefing on May 9.
One way FPL manages its loans is to maintain a “strong level” of fixed-rate debt, considering the jury is “still out there” in predicting when interest rates will come down. Even then, borrowing costs will not be lowered as rapidly since its debt is prudently hedged against interest rate risks at 70% to 80%, says Loo, adding that with FPL’s “strong recurring income base”, it has enough resources and ample liquidity to service its borrowings.
FPL is also focusing on divesting assets in a bid to unlock value. “Generally, in real estate, we cannot just be holding on to an asset for dear life all the time,” says Loo. “The overall endgame is to enhance capital efficiency, deleverage, as well as improve returns. And as long as these targets are met and on a sustainable basis, this will apply to all of our markets as well.”
Group CEO Panote Sirivadhanabhakdi says FPL has $6 billion to $10 billion worth of properties ready to be amortised “at any given time”, but it is in no hurry to do so. Instead, divesting “well” is more important. “We want to make sure we are not letting go of our assets prematurely,” he says. For instance, FPL is adopting a wait-and-see approach for its assets in the UK due to the rate cuts. With more of FPL’s properties in other geographies seeing property valuations stabilise, the group CEO can seek a better timing in the divestment of its portfolio.
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In the UK, in particular, FPL’s portfolio has been an “evolving journey” where it continues to see challenges, says Sirivadhanabhakdi. In 1HFY2025, FPL recorded a net fair value loss of $30.6 million, compared to the $6.9 million loss the year before, largely from a UK business park.
Despite the deleveraging, FPL is still looking out for opportunities. For instance, despite some cautiousness about overall prospects in China, in February, FPL joined two Chinese real estate groups to acquire a site in Shanghai for RMB815.2 million ($151.9 million).
At the briefing, Sirivadhanabhakdi addressed questions on the persistent undervaluation of FPL’s share price. As at March 31, its net asset value (NAV) per share stood at $2.38, versus its May 14 closing price of 82 cents. By this measure, Sirivadhanabhakdi says that FPL’s share is “definitely undervalued”.
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Tabitha Foo of DBS Group Research agrees, noting that FPL is trading at a “remarkably” cheap valuation. She points out that FPL’s stake in its various REITs already exceeds its market cap of $3.1 billion. “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,” says Foo, who has kept her “buy” call and $1.14 target price, which is pegged at a 60% discount to the revised NAV of $2.85. “There may be upside to dividends with higher profitability in the coming years,” she adds.
CGS International’s Lock Mun Yee has kept her “add” call with an unchanged target price of $1.41 following FPL’s proposed privatisation of Frasers Hospitality Trust(FHT). Lock believes the move could be a “win-win” for both as FHT’s unitholders get to realise their investment at a premium to NAV amid ongoing headwinds. FPL, on the other hand, will get to extract value in the long term. “The cash offer from FPL also translates to strong certainty in terms of timing and execution,” Lock notes.
Besides the big discount to NAV, what has kept investors interested in FPL is also how it has a small free float, which makes it a possible privatisation candidate. The Sirivadhanabhakdi family, via TCC Assets, owns almost 87% of FPL.
As of now, what FPL’s management prefers to focus on is to “build up the performance of the company back to where they have to be”, beyond having a quality portfolio and quality earnings. “So we are driving towards that and improving quarter to quarter, in my view,” says Sirivadhanabhakdi. “In regard to the shareholders’ decision, that’s beyond our response.”
