Frasers Commercial Trust - CIMB Research 2017-01-24: All eyes on ATP

FRASERS COMMERCIAL TRUST ND8U.SI

Frasers Commercial Trust - All eyes on ATP

1QFY17 DPU of 2.51 Scts (flat yoy) was in line with consensus and our expectations, forming 26% of our full-year forecast.
1QFY17 results underpinned by higher rental rates and occupancy at 357 Collins St.
Portfolio occupancy maintained at 93%.
No updates on Hewlett-Packard; 15.3% of GRI due for rest of FY17.
Revamping Alexandra Technopark (ATP) to create a new campus environment.

Frasers Commercial Trust FCOT reported a stable topline of S$39.7m thanks to higher contributions from 357 Collins St and a strong A$, partly offset by lower income from China Square Central (CSC) and Central Park in Perth. The rest of the portfolio delivered stable results.
Distribution income grew 1.2% yoy to S$19.9m, including a $0.85m capital distribution (0.28 Scts/unit). 1QFY17 DPU of 2.51 Scts was flat yoy, with no management fees taken in units (1QFY16: 23% of the manager’s fees were taken in units).

Singapore contributed to 54% of 1QFY17 NPI, with Australia the remaining 46%.
Portfolio occupancy was maintained at 93% with Australia showing a higher 93.8% takeup. Singapore was at 92.3%.
CSC office tower achieved full committed occupancy as at 1 st Dec while Caroline Chisholm Centre in Canberra and 357 Collins St in Melbourne were fully occupied.
Alexandra Technopark (ATP) achieved a +8.5% weighted average rental reversion for four new/renewed leases totaling 16.7k sq ft (1.6% NLA of ATP).

There are no new updates on Hewlett-Packard (HP) at ATP. Recall that 5.4% and 12% of the GRI due in FY17 and FY18, respectively, is attributable to HP.
FCOT has a remaining 15.3% of GRI to be renewed for the rest of FY17. Of which, the bulk of expiring leases are at ATP and CSC.
Grade B CBD Core decreased 2% qoq to S$7.35 vs. passing rent of S$6.90 for CSC office tower.
Business park island-wide remained resilient though vacancy declined 60bp to 11.9% in 4Q16 due to peak completions.

FCOT has planned an S$45m AEI for ATP. Scheduled from mid-17 to mid-18, this would increase space productivity, with the decanting of 20k sq ft of low-yielding space from Basement 1 to the ground floor to create a Central Plaza, a new amenity hub that would include a food court, F&B outlets, a clinic and other facilities. FCOT expects it to cause minimal disruptions. With a 36% gearing, we expect the AEI to be funded internally.
Also, a distributable reinvestment plan has been applied for 1QFY17 distribution.

We maintain Hold on FCOT, with the REIT yielding 7.4% for FY17. (TP S$1.26)
Our numbers have built in a consolidation of HP and we think that the trust’s DPU could dip in the next two years.
Upside/downside risks hinge on acquisitions and better-than-expected leasing demand for ATP.

YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2017-01-24

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