What You Should Know About The Performance And Future Of Frasers Centrepoint Ltd’s Australia Business
Frasers Centrepoint Ltd (SGX: TQ5) is a real estate company with interests in different geographies and different sectors of the real estate market.
Its focus is mainly on residential, commercial, retail, and industrial properties in Singapore and Australia, and hospitality assets in over 80 cities across Asia, Australia, Europe, and the MENA (Middle East and North Africa) region.
Appropriately, Frasers Centrepoint has three strategic business units (SBUs) and one business unit. They are, Singapore, Australia, Hospitality, and International, respectively.
In early November, Frasers Centrepoint released its full-year earnings for its fiscal year ended 30 September 2017 (FY17). I thought it would be useful to have a look at the business performance and outlook for each of the company’s SBUs. In here, the focus is on the Australia SBU, which accounted for 40.8% and 26.6% of Frasers Centrepoint’s total revenue and profit before interest and taxes (PBIT), respectively, in FY17.
The business performance
The table below shows a business-breakdown of the Australia SBU’s PBIT in FY17:
Source: Frasers Centrepoint FY17 full year earnings presentation
Frasers Centrepoint categorises its Australia SBU into three operational parts, namely, Residential Development, Investment Properties / Commercial & Industrial Development, and REIT.
In the Residential Development category, PBIT was higher due to completions and settlements of residential projects and the sale and settlement of two student accommodation components at Central Park in Sydney.
Meanwhile, the improvement in the REIT category was due to a full year’s worth of contributions from Frasers Logistics and Industrial Trust (SGX: BUOU), which was listed in June 2016.
The big laggard in FY17 for the Australia SBU was the Investment Properties / Commercial & Industrial Development category. Its PBIT was down significantly due to the loss in contributions from certain industrial properties following their sale to Frasers Logistics and Industrial Trust.
In all, the Australia SBU managed to perform well in FY17, because of strong growth in the Residential Development cateogry.
We’ve seen that the Australia SBU had delivered strong growth in PBIT in FY17. What’s in store for the business in FY18? Here are some important comments from Frasers Centrepoint on the Australia SBU given in the earnings release (emphasis is mine):
“The Group will continue to grow its businesses and asset portfolio in a prudent manner across geographies and business segments. The Group is looking to grow its recurring income from a geographically-diversified earnings base. The Group will also focus on optimising capital productivity and strengthening its REIT platforms…
In Australia, the Group will replenish the residential landbank and restock the industrial portfolio through the FPA (Frasers Property Australia) platform in a measured manner.”
In other words, investors can expect Frasers Centrepoint to continue to focus on property development in the Residential Development category as well as for industrial properties, while growing its recurring income.