Frasers Commercial Trust - OCBC Investment 2017-04-24: Marginal Growth Delivered

Frasers Commercial Trust - OCBC Investment 2017-04-24: Marginal Growth Delivered FRASERS COMMERCIAL TRUST ND8U.SI

Frasers Commercial Trust - Marginal Growth Delivered

  • 2QFY17 DPU +1.7% YoY.
  • Some pressure on occupancy.
  • Uncertainties over HP leases remain.

2QFY17 results met our expectations 

  • Frasers Commercial Trust (FCOT) reported its 2QFY17 results which met our expectations.
  • Gross revenue and NPI grew 3.2% and 4.1% YoY to S$40.2m and S$30.0m, respectively, while DPU was up 2.4% to 2.51 S cents. NPI growth was largely driven by higher contribution from 357 Collins Street due to higher occupancy and rental rates achieved, appreciation of AUD relative to SGD, and a one-off payment received in relation to a termination of lease in Central Park. 
  • For 1HFY17, FCOT’s gross revenue and NPI both increased 1.7% to S$79.9m and S$59.2m, respectively, with the latter accounting for 50.1% of our forecast. 
  • DPU of 5.01 S cents represented marginal growth of 1.0% and formed 50.7% of our full-year projection.

Positive portfolio rental reversions driven by ATP 

  • On a portfolio basis, FCOT’s committed occupancy slipped 1.2 ppt QoQ to 91.8%, as higher occupancy in Australia was offset by increased vacancies in Singapore. Management achieved average positive rental reversions of 3.6% in 2QFY17. This was largely driven by Alexandra Technopark (ATP) (+4.7% for c.101,300 sq ft). 
  • 55 Market Street also saw positive rental uplifts of 3.1% for c.3,000 sq ft of space, while China Square Central (office tower) was flat (-0.1% for c.14,700 sq ft) and Central Park had a large negative rental reversion of 43.2% but this was only for 0.03% of NLA of the property. From our understanding, there are no concrete updates on the leases for the two Hewlett-Packard (HP) entities which are expiring in Sep/Nov this year. Management continues to engage these tenants actively. 
  • Looking ahead, we believe there would be some pressure on FCOT’s rental reversions for its Singapore portfolio. For Australia, the outlook for Perth has improved and FCOT has seen an increase in enquiries, while Melbourne’s CBD office market is expected to remain robust.

Maintain BUY 

  • Since we last reiterated our ‘Buy’ rating on 14 Mar on the premise that the uncertainties over FCOT’s ATP asset had been priced in by the market, its share price has rebounded 6.8%. 
  • We maintain our BUY rating on FCOT with an unchanged fair value estimate of S$1.39. 
  • FCOT is currently trading at blended FY17/18F distribution yield of 7.1%.

Wong Teck Ching Andy CFA OCBC Investment | 2017-04-24
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 1.390 Same 1.390