On the surface, FFB’s operating performance appears positive, with high NOI growth; however, when FV adjustments are removed, the performance is fairly negative. NRP’s strong performance and increase in DIPs also hide the underperformance. Even with FFB’s holding in NRP dropping from 24.2% to 16.3%, NRP’s contribution to DIPs increased, whereas the DIPS generated by FFB assets declined 5.7%.
Our calculation of comparable operating cash flow shows a 49% decline year on year in FY24. Net yields on all divisions (SA and CEE) are below the cost of debt, and, crucially, property sales have all been at higher yields than the remaining portfolio. FFB also saw a 13.5% increase in property costs and a 31.5% increase in finance costs. 91.4% of debt is hedged and those hedges are in the money, so as they expire, we expect finance and operating costs to rise further, putting pressure on DIPS. This together with continued property sales is why, even with the high top-line growth as new developments have come online, guidance is for a decline in DIPS. The negative reversions in SA logistics and Retail, which are the two main segments, was surprising. The DIPS yield on FFB direct assets was 0.9%, vs 10.4% on NRP.
In our view, distributing NRP shares to investors is a value unlock for shareholders, and the increase in our target price is due to the increase in NRP’s share price and improved guidance. NRP might be a good asset at the current price, but it is important to remember that FFB acquired its holding above the current price.