Frasers Commercial Trust - RHB Invest 2016-01-21: Unconcerned Over Abundant Supply

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FRASERS COMMERCIAL TRUST ND8U.SI 

Frasers Commercial Trust (FCOT SP) - Unconcerned Over Abundant Supply 

• FCOT’s results were within our expectations. 
• Maintain BUY with a lower DDM-derived SGD1.40 TP (from SGD1.54, 17% upside), which implies 0.91x FY15 P/BV. 
• Results were in line with our expectations as, despite the pessimism within the overall office leasing market, it managed to book double-digit rental reversions at China Square Central. 
• In addition, the REIT’s portfolio occupancy level remained healthy at 93%. 

 Results were in line. 

• There were no surprises from Frasers Commercial Trust’s (FCOT) 1QFY16 (Sep) results, as DPU was up 2% YoY, meeting c.25% of our full-year estimation. This increase in DPU was underpinned by a c.12% YoY rise in gross revenue, mainly due to the addition of an Australian asset (357 Collins Street) in Aug 2015. 
• FCOT’s gearing ratio remained healthy at c.36%, while all of its AUD-dominated debt provided a natural hedge for its assets in Australia. 

 Achieved double-digit positive rental reversions despite the lacklustre office leasing market outlook. 

• Rental reversions for FCOT’s Singapore portfolio were positive, ranging from 5% to c.10%, while occupancy for its overall portfolio remained high at c.93%. 
• Looking forward, we think that the REIT would be able to register positive rental reversions in 2016 due to the low average passing rent for its expiring leases. 

 Unconcerned over the large office supply in the market over the next two years. 

• Collectively, FCOT faces lease expiry on c.33% of its total gross rental income. 
• Though we are pessimistic on the office leasing climate over the next two years, we are not overly concerned for the REIT. This is because the incoming office supply is mainly within the Grade A office spaces. 
• In addition, performances for Grade B offices are known to more resilient vis-à-vis Grade A ones. 

 Maintain BUY with a lower SGD1.40 TP (from SGD1.54). 

• We hold a pessimistic view on the overall office market. Hence, we lower our TP by 9% to SGD1.40 after factoring a lower TG rate by 40bps to 1.2%. 
• Our TP implies a FY16F dividend yield of 7.1%. Maintain BUY.

Ivan Looi RHB Invest | http://www.rhbinvest.com.sg/ 2016-01-21

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 1.40 Down 1.54