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CIMB Research 2015-07-21: Frasers Commercial Trust - Steady Singapore. Maintain ADD.

Steady Singapore 


  • FCOT’s 3Q/9MFY15 DPUs were in line, at 24%/74% of our full-year forecasts. 
  • We continue to expect healthy growth from its Singapore properties as they remain under-rented. 
  • While we are less sanguine about its Australia exposure, we take comfort that only three leases are set to expire in FY9/16 (1.9% of total portfolio income) and FCOT has hedged its A$ exposure on a 6-9 months rolling basis. 
  • We maintain our Add rating, with a slightly higher DDM-based target price of S$1.62 (from S$1.60) as we roll-forward our estimates and make minor tweaks to our FY16-17 DPUs. 
  • Catalysts could come from healthy rental reversions at its Singapore properties. 


Results highlight 


  • FCOT’s 3Q/9MFY15 DPUs were in line, at 24%/74% of our full-year forecasts. 
  • 3QFY15 NPI grew 6% yoy, mainly due to the expiry of the master lease at Alexandra Technopark (ATP) in Aug 2014, and partially offset by weakening A$ and lower occupancy for Central Park. 
  • Singapore properties continue to perform well, with China Square Central (CSC), 55 Market Street (55MS) and ATP achieving 14-20% rental reversion. 
  • Central Park achieved negative rental reversion of -25%, but that was only for retail leases that occupy less than 1% of the total NLA of the property. 
  • Occupancy remained stable, at 95-97% for Singapore properties and 88.6% for Central Park. 


Singapore properties to continue healthy growth trajectory 


  • We continue to expect healthy growth from FCOT’s Singapore properties as ATP will continue to enjoy positive rental growth from the expiry of its master lease and CSC and 55MS should remain stable. 
  • We are less sanguine about the outlook in Australia, given the weak A$ and high incentives for office tenants. 
  • However, we take comfort that only three leases at Central Park are set to expire in FY16 at below-market rents and FCOT typically hedge its A$ exposure 6-9 months on a rolling basis. 


Maintain Add 


  • We like FCOT for its under-rented Singapore assets, offering a buffer for potential rental pressure from the incoming office supply. 
  • Additionally, the recently proposed CSC hotel transaction can help to unlock capital, while the proposed acquisition of 357 Collins and private placement will also help to grow the portfolio and free float.


(TAN Xuan, CFA; PANG Ti Wee; LOCK Mun Yee)


Source: http://research.itradecimb.com/




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