Frasers Commercial Trust - CIMB Research 2017-07-24: Focus On Upcoming Expiries

FRASERS COMMERCIAL TRUST ND8U.SI

Frasers Commercial Trust - Focus On Upcoming Expiries

Results in line, FCOT's 9MFY17 DPU of 7.43 Scts makes up c.76% of FY17 forecast.
Slight improvement in portfolio occupancy, negative rental reversion for Singapore portfolio.
C.39.1% of rental income expiring in 4QFY17 and FY18, no update on HP lease.
Sound balance sheet with gearing at 35.9%.

3QFY9/17 NPI (on a cash basis) improved 1.5% yoy to S$27.9m, thanks to a stronger A$ and higher contribution from 357 Collins St. This more than offset the lower occupancies at China Square Central (CSC), Alexandra Technopark (ATP) and Central Park in Perth, as well as negative rental reversion at CSC.
DPU of 2.4 Scts was marginally lower yoy with 12% of manager’s fees paid in units.
For 9M, DPU of 7.43 Scts made up 75.6% of our FY17 forecast.

Portfolio occupancy crept up 0.8% pts qoq to 92.6% as at 3Q. Higher occupancy at the Singapore portfolio more than offset the decline in the Australian portfolio take-up at 94.4%.
The Singapore portfolio was 91.2% leased, dragged by AEI works at ATP and CSC. During the quarter about 51,000 sqft of space in the Singapore portfolio was leased/renewed at 2.5% lower over preceding levels.

There is another 8.2% of rental income to be renewed in 4QFY17 and 30.9% in FY18.
The bulk of the FY17 lease renewals is at ATP. This includes the Hewlett-Packard lease, of which 5.6% expires in 4QFY17 and another 12.6% is due to be renewed in FY18 (HPE and HP Singapore). No updated details on this development have been given, although the manager continues to be active in tenant engagement.
In the meantime, the trust is undertaking a S$45m upgrading and repositioning of the property.

In terms of capital management, FCOT has completed its refinancing this year and has no debt due until Aug 18. 91% of its debt cost is at fixed rates and the average cost of funds is at 3.05%.
Gearing stands at 35.9%.

We keep our FY17-19 DPU unchanged. However, we tweak our long-term blended Singapore/Australia growth rate from 1.5% to 1.9% on slight growth assumptions for Singapore (on the back of the anticipated office cycle recovery) and Australia (due to inbuilt step-ups). Hence, our DDM-based target price is raised to S$1.45.
Retain Hold call as total return is modest at 8%.
Upside risk is faster-than-expected ramp-up of portfolio occupancy and downside risk is potential reduction in leased area by HP.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2017-07-24

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