Frasers Commercial Trust - CIMB Research 2015-10-23: Driven by ATP

FRASERS COMMERCIAL TRUST ND8U.SI

Frasers Commercial Trust - Driven by ATP

The 14% rise in DPU came from ATP and better performance at CSC and 55MS.
Weaker A$ dragged down earnings growth and book value.
Portfolio occupancy to remain high.
Proactive asset management including AEI at CSC and signing of new 12-year lease with Hamersley Iron extend earnings visibility.
Maintain Add with DDM-based target price of S$1.62.

FCOT’s 4QFY15 DPU rose 14% to 2.52 Scts, in tandem with the improvement in topline. 4Q and full-year DPU were in line, making up 26% and 99% of our FY15 estimate.
The better performance was due to higher revenue from Alexandra Technopark (ATP) due to the expiry of the master lease in Aug 14, better occupancies and rents at China Square Central (CSC) and 55 Market St (55MS), as well as maiden contribution from 357 Collins St in Melbourne. This helped offset the impact of a weaker A$.

FCOT’s book NAV dipped from S$1.61 to S$1.54 as at Sep 15 due to lower value of CSC and Central Park as well as the drag from a weaker A$. This was despite a small compression in cap rate for its Australian properties. FCOT’s portfolio value stands at S$1.95bn, including the recently purchased 357 Collins St.

Occupancy was stable, at 94.6-96.2% for Singapore properties and 88.6% and 98.4% for Central Park and 357 Collins St. Singapore properties’ renewal rents rose 2.8-17.6% in 4Q. In Australia, Hamersley Iron Pty Ltd, which accounts for 6.2% of portfolio income, signed a heads of agreement for a 12-year lease till FY30.
Looking ahead, c.18.6% of FY16 and 16.9% of FY17 rental income are due to be renewed. We expect reversions to remain positive as current spot rents are still about 3-15% above passing levels.

FCOT will continue to drive earnings growth through proactive asset management. It recently sold its rights to the hotel GFA at CSC and will enhance the property by relocating some basement retail area to the ground floor to provide room for uplift in rents. This S$7m exercise is scheduled to start in early 2016.

We continue to like FCOT for its under-rented Singapore assets and value unlocking activities. We retain our Add rating with an unchanged DDM-based target price of S$1.62. The stock offers FY16 DPU yield of 7.6%, on the higher end of its peers’ range.

LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2015-10-23

CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 1.62 Down 1.62