Frasers Property’s Big Asset Shuffle With Controlling Shareholder to Drive Value

Under the proposed optimisation plan, certain legacy arrangements put in place to support the privatised Frasers Hospitality Trust (FHT) listing will be reversed. FHT’s interest in S$2.1 billion worth of hospitality assets will be shuffled between FPL and TCCGI, which currently hold 63.3 per cent and 36.7 per cent of FHT’s stapled securities, respectively.

A group of mature hospitality assets worth S$1.1 billion will end up being fully owned by TCCGI, while FPL will have full ownership of Frasers Suites Singapore, an asset worth more than S$300 million. FPL said full ownership of Frasers Suites Singapore will enable the group to pursue potential redevelopment of the entire Valley Point site, providing further opportunities for value creation over the longer term.

TCCGI will also have a more than 50 per cent interest in S$400 million worth of hospitality assets that have the potential to achieve higher yields through value enhancement initiatives. FPL and TCCGI will maintain their existing interests in a further S$300 million worth of assets classified as “non-core” and earmarked for eventual sale.

FPL said it expects to receive S$177.9 million in cash from the various divestitures and acquisitions. After footing S$78.4 million in fees, stamp duties and other taxes, net proceeds will come in at S$99.5 million. The group’s balance sheet exposure to hospitality assets will decline from approximately S$3.7 billion to S$2.5 billion, while assets under management will be maintained at S$4.2 billion.

FPL is acquiring Frasers Suites Singapore at its latest independent valuation of S$320 million, which is less than 0.7 per cent above the implied take-private valuation of S$317.9 million. Of the five mature assets worth S$1.1 billion that TCCGI will fully own, four are being priced at their implied take-private valuations and above their latest independent valuations.

FPL’s shares closed on Friday (July 3) at S$1.07, just 0.45 times the company’s net asset value of S$2.40 per share. DBS Group Research said it expects resilient performance across FPL’s businesses and that the redevelopment of Valley Point and Centrepoint could lift its revalued NAV by S$0.53 per share. The research house’s target price for FPL is S$1.50, or just 0.54 times its estimate of FPL’s revalued NAV of S$2.80 per share.

Some analysts think FPL is now trading at an unjustifiably low valuation and that its shares could rise significantly in the months ahead. During the 12-month period to the day before the optimisation plan was announced, FPL delivered a total return of 31.7 per cent. City Developments Ltd and UOL Group returned 63.7 per cent and 61.3 per cent over the same period, respectively. The Straits Times Index returned 39.7 per cent during the same period.

Much like other major Singapore-listed real estate groups, FPL’s return on equity has sagged over the years, and weighed on the market valuation of its shares. Unlike its best-known peers, FPL’s shares have not rerated significantly amid the excitement about the revitalisation of the Singapore market.

E-commerce has been reshaping demand for retail and dining spaces for years. The rise of artificial intelligence and remote work are also making the long-term outlook for traditional office spaces harder to discern. FPL may well be about to enhance its underlying value significantly with the backing of its controlling shareholder, but it is not clear how quickly and to what extent this will be reflected in the market value of its exceedingly depressed stock.