Frasers Commercial Trust - OCBC Investment 2016-10-20: In-line Set of 4QFY16 Results

Frasers Commercial Trust (FCOT) - OCBC Investment 2016-10-20: In-line Set of 4QFY16 Results FRASERS COMMERCIAL TRUST ND8U.SI

Frasers Commercial Trust (FCOT) - In-line Set of 4QFY16 Results

  • 4QFY16 DPU fell 2.8% YoY.
  • Positive rental reversions across Singapore.
  • Higher portfolio valuation.

4QFY16 results met our expectations 

  • Frasers Commercial Trust (FCOT) reported its 4QFY16 results which met our expectations. 
  • Gross revenue and NPI grew 5.7% and 6.9% YoY to S$39.3m and S$29.3m, respectively, but DPU declined 2.8% to 2.45 S cents. This was partly because FCOT elected not to have any of its management fees to be paid in units this quarter. 
  • For FY16, FCOT’s gross revenue jumped 10.1% to S$156.5m; NPI rose 13.5% to S$115.6m and this accounted for 100.3% of our forecast. DPU of 9.82 S cents represented growth of 1.1% and formed 99.7% of our projection.

Largely resilient, but overall environment still challenging 

  • On a portfolio basis, FCOT’s occupancy was relatively stable at 93.0% (-0.3 ppt QoQ). 
  • Management achieved positive rental reversions across its Singapore assets in 4QFY16, with rental uplifts of 3.7%, 5.3% and 9.5% coming in at China Square Central (CSC), 55 Market Street and Alexandra Technopark (ATP), respectively. 
  • For Australia, Central Park (CP) had a negative rental reversion of 4.2% (for office space representing 1.4% of the property’s NLA), while 357 Collins Street saw a positive rental reversion of 6.2%. 
  • Overall portfolio weighted average rental reversions came in at 6.6% for FY16. 
  • Looking ahead, we believe rental reversions are likely to ease given the challenging operating environment. 
  • FCOT’s portfolio value was re-valued upwards by 1.8% to S$1,989.3m, as at 30 Sep 2016, as higher valuation was recorded for ATP, 55 Market Street, Caroline Chisholm Centre and 357 Collins Street, but partially offset by lower valuation at CSC (downtime from hotel and commercial project) and CP (lower market rents and higher incentives assumed).

Maintain BUY 

  • In terms of financial position, FCOT’s gearing ratio was stable at 36.0%, as at end-FY16, with 85% of its gross borrowings hedged. 
  • We trim our FY17 DPU forecast by 1.7%, but maintain BUY on FCOT with a higher fair value estimate of S$1.48 as we also roll forward our valuations. 
  • The stock currently offers FY17F distribution yield of 7.1%. 
  • Downside risks to our projections include potential non-renewal of the leases by HP at ATP upon expiry in Sep and Nov 2017.

Wong Teck Ching Andy CFA OCBC Investment | http://www.ocbcresearch.com/ 2016-10-20
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 1.48 Up 1.450