FRASERS COMMERCIAL TRUST
ND8U.SI
Frasers Commercial Trust - Riding past uncertainties
Firing on all fronts.
- We maintain our BUY call, TP of S$1.53. FCOT offers an attractive yield of > 7.6%, which is compelling in our view, given limited downside risks.
- We believe that its portfolio of mainly Grade B office assets, business parks will weather the current downturn in CBD rents over FY16-17F.
FY16F is a year of gestation.
- FCOT delivered a strong rebound in DPU of 15% in FY15, driven partly by
- expiry of underrented master lease at Alexandra Technopark which offered significant upside to revenues, and
- acquisition of 257 Collins Street in Melbourne.
- Looking ahead, we believe that FY16F will be a year of gestation for the REIT as the manager looks to consolidate its position and optimise its portfolio performance given increasing headwinds in the Singapore office market and slowing Australian economy.
Secure earnings with steady growth.
- FCOT’s portfolio enjoys a high occupancy of 96.5% and a long WALE of 3.9 years.
- In addition, > 30% of leases have annual rental escalations of c.3%, which provides in-built income growth.
- With no debt expiring until FY17, and close to 80% of interest costs hedged into fixed rates, FCOT is well positioned to ride out the economic downturn in Australia, as well as near-term interest rate volatility.
Valuation:
- We maintain our BUY call and DCF-based TP of S$1.53.
- At its current price, FCOT offers investors a dividend yield of c.7.7- 7.8% over FY15-16F, one of the highest among office-focused S-REITs.
Key Risks to Our View:
- Unfavourable forex movements. As FCOT derives c.45% of its NPI in AUD while distributions are based in SGD, foreign currency fluctuations will have an impact on distributions.
- The Manager has hedged its AUD exposure on a rolling basis of 6- 9 months to mitigate against forex risk.
Mervin Song CFA
DBS Vickers
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Derek Tan
DBS Vickers
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http://www.dbsvickers.com/
2016-04-06
DBS Vickers
SGX Stock
Analyst Report
1.53
Same
1.53
