Frasers Property: A Conservative Play on Robust Earnings

Frasers Property Limited (SGX:TQ5) has been making waves in the real estate sector, with its recent earnings release showcasing a robust performance. However, the market seems to have overlooked some promising details. Let's dive into the company's earnings and explore why we believe Frasers Property is a conservative investment choice.

The Company
Frasers Property Limited is a real estate company that owns, develops, and manages a diverse, integrated portfolio of properties. Its assets range from residential, retail, commercial, and business parks to industrial and logistics in Singapore, Australia, Europe, China, and Southeast Asia. The company's hospitality business owns and/or operates serviced apartments and hotels in over 80 cities across Asia, Australia, Europe, the Middle East, and Africa. Frasers Property also acts as a sponsor of four vehicles listed on the SGX-ST, comprising three REITs and one stapled trust, focused on various real estate sectors.

Assets
Frasers Property's portfolio consists of prime properties in key gateway markets, including New York City, London, Toronto, Los Angeles, Sydney, Calgary, Berlin, and Rio de Janeiro. The company's retail portfolio comprises prime malls with an average occupancy rate of 95%.

2024 - A Year of Resilience
Frasers Property went into 2024 with a strong balance sheet and a track record of consistent earnings growth. Despite the challenges posed by the global economic slowdown, the company's core office properties and retail portfolio remained resilient.

Can Frasers Property Maintain Its Momentum?
Frasers Property's ability to maintain its earnings momentum depends largely on its debt structure and cash flow management. The company carries a significant amount of debt, but almost all of it is at the property level, providing a strong defense against market turmoil. Additionally, Frasers Property has consistently generated positive operating cash flow, which allows it to pay dividends while also investing in its business.

The Company's Confidence in Its Future
Frasers Property's parent, Frasers Property Holdings, has shown a strong vote of confidence in the company by going on a buying spree of Frasers Property shares. This suggests that the company's management believes in the long-term prospects of Frasers Property.


Sustainable Dividend?
Frasers Property's dividend is well-covered by its FFO and LP investment gains. While we don't expect the distribution to be covered via FFO in the near term, Frasers Property's parent is heavily incentivized to keep the distribution going at the current rate.

But in this environment, we would not rule out a cut, especially since we don't expect the distribution to be covered via FFO. Based on all the information, Frasers Property thus enjoys a high distribution safety rating on our proprietary Kenny Loggins Scale.

Conclusion
Frasers Property's robust earnings and conservative debt structure make it an attractive investment choice in the current market environment. While there may be short-term noise, the company's long-term prospects remain strong. Investors should consider Frasers Property as a core holding in their portfolios, especially those seeking a stable dividend income.