Frasers Commercial Trust - CIMB Research 2016-10-20: Does all-time high distribution signal peak DPU?

Frasers Commercial Trust - CIMB Research 2016-10-20: Does all-time high distribution signal peak DPU? FRASERS COMMERCIAL TRUST ND8U.SI

Frasers Commercial Trust - Does all-time high distribution signal peak DPU?

  • FY16 DPU of 9.82Scts (+1% yoy) was in line with our and consensus expectations, at 100% of our full-year forecast. 4Q16 DPU of 2.45Scts (-3% yoy) was at 25%.
  • FCOT achieved portfolio occupancy of 93% and a positive weighted average rental reversion of 6.6% in FY16. 21% of GRI is up for renewal in FY17.
  • Building in slight positive rental reversions plus a logical consolidation of HP, we see limited upside for FCOT.
  • Downgrade FCOT from Add to Hold with a lower DDM-target price.


FY16 highlights: all-time high DPU 

  • FCOT achieved its highest DPU since listing in 2006. Its performance was boosted by the full-year contribution from 357 Collins Street and good performance of Alexandra Technopark (ATP), due to higher rents. 
  • FY16 DPU included a capital distribution of 0.72 Scts/unit (S$2.2m) used to supplant the loss of income by certain retail units disrupted by construction works at China Square Central (CSC). 
  • Portfolio value rose 1.8% on lower cap rates and higher market rents at Caroline Chisholm Centre and 357 Collins St.


Portfolio occupancy of 93% 

  • The Singapore and Australia portfolios achieved 92.5% and 93.8% average occupancies respectively. CSC recorded lower occupancy of 88.9% (FY15: 96.2%) due to ongoing construction works though occupancy at its office tower remained high at 99.4%.
  • Occupancies at 55 Market Street and ATP were stable at 92% and 94.8% respectively.
  • In Australia, Caroline Chisholm Centre and 357 Collins St. were fully occupied.
  • Occupancy at Central Park was 80.2%, as a result of the challenging Perth market.


Portfolio achieved weighted ave. rental reversion of +6.6% in FY16 

  • The Singapore properties continued to achieve positive rental reversions through FY16.
  • CSC recorded +5.4% rental reversion, 55 Market Street +6.3% and ATP +7.3%. With Grade B CBD Core spot rents at S$7.50 psf vs. average expiring rents of S$6.90-7.20 psf, we expect flattish to slightly positive rental reversions for FY17F. 
  • In Australia, Central Park recorded -4.2% rental reversion for a small space (1.4% of the property’s NLA) while 357 Collins St. enjoyed +6.2%.


Lease expiry profile: 21% of GRI up for renewal in FY17 

  • Occupying 47.6% of ATP, Hewlett-Packard (HP) accounts for 17.5% of GRI and 52% of ATP’s rental income. Some 5.5% and 12% of GRI, up for renewal in FY17 and FY18, respectively, are attributable to HP. The HP lease expiring in FY17 expires in Sep 17’.
  • Hence, any effects would be felt in FY18. The HP lease expiring in FY18 ends in Nov 17’. In our numbers, we have assumed a partial-renewal of the HP lease and assumed frictional vacancies at ATP, resulting in FY17F ave. occupancy of 85% (prev. 87%).


Downgrade to Hold with limited upside 

  • We moderate our forward occupancy and rental reversion assumptions, resulting in cuts for FY17-18F DPU. We also introduce our FY19F numbers and roll-forward our valuations, resulting in a lower DDM-TP (S$1.40)
  • Building in flattish to slightly positive rental reversions, plus a logical consolidation of HP, we believe that FY16 was a peak in terms of DPU (3-year view). Hence, we downgrade FCOT from Add to Hold. 
  • We have not factored in further capital distributions, which would be the upside risk to our estimates.




YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2016-10-20
CIMB Research SGX Stock Analyst Report HOLD Downgrade ADD 1.40 Down 1.420



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