FCL aims to tap brighter growth prospects overseas

Frasers Centrepoint Limited chief executive Lim Ee Seng said the deal with the TCC Group is ideal: "We can capitalise on (TCC Group's) connections and ability to execute projects in Thailand; at the same time, they like our corporate governance and m
Frasers Centrepoint Limited chief executive Lim Ee Seng said the deal with the TCC Group is ideal: "We can capitalise on (TCC Group's) connections and ability to execute projects in Thailand; at the same time, they like our corporate governance and management expertise."ST PHOTO: ONG WEE JIN

Property group to buy stake in Thai-listed firm amid challenging market at home

The move by property firm Frasers Centrepoint Limited (FCL) to expand its residential business from the lacklustre local scene to Australia, China and Britain has proved a winning strategy.

The group is now making a play in a fourth foreign market - Thailand.

It announced yesterday that it has signed a deal linked to the Sirivadhanabhakdi family. Mr Charoen Sirivadhanabhakdi's TCC Group is majority shareholder of FCL.

The move would mark a re-entry in the Thai residential and commercial markets for Frasers Centrepoint Limited, which sold off its interests in two other Thai property companies last December.

FCL said it plans to pay about $196 million for a 29.5 per cent stake in Thai-listed Golden Land Property Development. Univentures, a firm controlled by two of Mr Charoen's sons, is the majority shareholder of Golden Land.

The move would mark a re-entry in the Thai residential and commercial markets for FCL, which sold off its interests in two other Thai property companies last December.

FCL said Golden Land is a good fit as it has a "shared philosophy" - to capture the broad-based residential market in the mid-income segment and establish a real estate investment trust platform, among other strategies.

FCL chief executive Lim Ee Seng told The Straits Times the TCC Group-FCL match is ideal: "We can capitalise on (TCC Group's) connections and ability to execute projects in Thailand; at the same time, they like our corporate governance and management expertise."

The group has been steadily growing its overseas business. Overseas contributions grew from 42.7 per cent of operating profit a year ago to 55.3 per cent as at Sept 30, and FCL chief financial officer Chia Khong Shoong said it could hit 60 per cent in the medium term.

The residential market here has turned challenging, Mr Lim noted at FCL's annual results briefing yesterday. The company sold 760 units last year, mostly at North Park Residences, or about 10 per cent of total new sales in the market.

"I believe we are past the inflexion point... Gone are the days a high-profile launch can be sold out overnight... The launch of a good project can expect 30 to 50 per cent initial take-up," Mr Lim said. North Park achieved over 50 per cent and is about 66 per cent sold.

He also expressed concern over the additional buyer's stamp duty (ABSD) levied on developers if they fail to build and sell all units within five years from purchasing a plot.

As many as 2,749 units could be exposed to this in 2017, and about 4,000 in 2020, he said, citing data from the Real Estate Developers' Association of Singapore.

The choice for developers is to either pay the penalty - 15 per cent on land cost - or sell the balance to a holding company, which would involve stamp duty levied on the unit prices instead and could be lower.

FCL's exposure to the ABSD is minimal, he added. It could stand to incur penalties for eCO, its joint venture project with Far East Organization and Sekisui House, which has 23 units left, and may have to pay Qualifying Certificate penalties on a bungalow in Holland Park.

The company is still in the market for land, and was the third highest bidder at the Lorong Lew Lian land tender that closed last week. But Singapore developers face margins that are barely at 10 per cent - which a price correction of 10 to 15 per cent could erode - down from 30 to 40 per cent previously.

Prospects look brighter overseas.

FCL completed the integration of Australand in October last year and it was rebranded as Frasers Property Australia (FPA) in August.

FPA launched a new retail business unit last month. While it had previously sold off retail elements in its mixed developments, FCL's retail expertise now means it could retain these or build them bigger - and even inject them into Frasers Centrepoint Trust some time later.

FPA is jointly developing Central Park in Sydney with Sekisui House Australia. FPA is also planning a 400,000 sq ft mall as part of an upcoming mixed-use project in Edmondson Park, Sydney.

Fundamentals in Sydney remain strong despite news reports that foreign buyers are pushing up prices, added Mr Lim. But foreign buyers form a limited portion of demand, and made up about 17 per cent of FPA's homebuyers last year.

Improved margins in Australia should flow through the books in the 2016 financial year, said FPA chief executive Rod Fehring.

Unit sales in China rose about 26 per cent from last year to 2,400 this year. FCL still has about 1,200 unsold units and a land bank of about 4,400 units, which could last the company about three years. "We are in no big hurry to acquire more land in China... But the fundamentals for real estate there have not changed," said Mr Lim.

On the commercial front, FCL has started a $50 million revamp at The Centrepoint, while Waterway Point in Punggol should be completing this month. Construction of Frasers Tower started in May.

Mr Lim also said Frasers Hospitality grew fast during the year, acquiring 29-hotel Malmaison group. The unit is on track to achieve 30,000 rooms by 2019.

"I see the hospitality unit growing by leaps and bounds. It makes sense as a lot of its business is management fee-based, so little equity is required," he said.

This supports FCL's aim of growing its recurrent income, which formed 58 per cent of operating profit as at Sept 30, up from 50 per cent a year earlier - well within targets of 50 to 60 per cent in the long term, Mr Lim said.

Net profit shot up 54 per cent to $771.27 million for the year on a 62 per cent rise in revenue to $3.56 billion, thanks mainly to a full year's contribution from FPA.

FCL declared a dividend of 6.2 cents for the full year on top of an interim dividend of 2.4 cents, similar to a year earlier. The counter closed up 0.5 cent at $1.66 yesterday.

A version of this article appeared in the print edition of The Straits Times on November 10, 2015, with the headline 'FCL aims to tap brighter growth prospects overseas'. Print Edition | Subscribe