Frasers Commercial Trust - CIMB Research 2016-04-21: ATP and 357 Collins St continue to deliver

Frasers Commercial Trust - CIMB Research 2016-04-21: ATP and 357 Collins St continue to deliver FRASERS COMMERCIAL TRUST ND8U.SI 

Frasers Commercial Trust - ATP and 357 Collins St continue to deliver 

  • 2QFY9/16 DPU of 2.45 Scts in line with expectations, boosted by income from 357 Collins St and ATP. 1HFY16 DPU at 48% of our full-year forecast. 
  • Contributions from CSC to remain steady during AEI on the back of capital top-up. 
  • Income from CP to remain flat given the softer Perth office leasing market. 
  • Singapore assets to enjoy slight but positive rental reversions. 
  • Maintain Add, with a revised target price of S$1.42. 

■ Income boosted by new acquisition 

  • FCOT reported a 3% rise in 2QFY16 DPU to 2.45 Scts. 
  • The improvement was underpinned by a 12% hike in gross revenue, thanks to income from 357 Collins St, bought in 3QCY15, and higher contributions from Alexandra Technopark (ATP). This helped offset the impact of a weaker A$, and lower occupancy at China Square Central (CSC) and Central Park (CP). 
  • Lower repair and maintenance cost at Caroline Chisholm Centre (CCC) helped boosted NPI margin by 3% pts to 73.9%. 

■ Income vacuum from CSC AEI filled by capital distribution 

  • Construction works for CSC’s hotel component and asset enhancement initiatives (AEI) at its retail portion have commenced, resulting in its retail occupancy dipping to 88.6% during the quarter while its office tower remains fully occupied. As such, there was an S$0.6m capital distribution to defray the loss of income during the quarter. 
  • Management expects the occupancy level at the retail space to remain around the present levels during this makeover period, scheduled to complete in mid-2019. 

■ Contributions from CP to stay relatively stable 

  • Occupancy at CP remained at 80.3% in 2QFY16 and we expect its leasing activities to stay muted, in tandem with the softer office leasing market in Perth. 
  • According to property consultants, while the leasing market is likely to remain soft in 2016 and incentives continue to be elevated, there has been some tenant flight to quality. As such, we think occupancy at CP would remain relatively unchanged in FY16. 

■ Positive rental reversions in Singapore 

  • FCOT renewed c.9% of its gross rental income in 2QFY16, largely at CSC, 55 Market St and ATP, at low to mid single-digit positive rental reversions. 
  • Demand came from diversified tenant trade sectors such as legal, consultancy, IT, insurance and shipping. It has an estimated 6.4% of rental income to be re-contracted for the remainder of FY16 and 22.3% in FY17. 
  • With expiring monthly rents at S$5.8-6.6psf at CSC and S$4psf at ATP, we think the trust should still be able to generate small but positive renewals. 

■ Maintain Add 

  • We lower our FY16-18 DPU estimates by 5.4-8.4% to factor in lower occupancy at CSC during its retail AEI period and moderated our forecasts on the take-up at Central Park in Perth as the market there remains subdued. 
  • Accordingly, our DDM-based target price lowers to S$1.43. 
  • We maintain our Add rating. 
  • FCOT offers attractive dividend yield of 7.6% and total return of c.18%.

LOCK Mun Yee CIMB Securities | YEO Zhi Bin CIMB Securities | 2016-04-21
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 1.43 Down 1.57