Frasers Commercial Trust - OCBC Investment 2018-07-26: Do More With Less

FRASERS COMMERCIAL TRUST SGX:ND8U

Frasers Commercial Trust - Do More With Less

Frasers Commercial Trust’s (FCOT) 3QFY18 results were broadly in-line with our expectations. Gross revenue fell 15.2% y-o-y to S$32.4m, which formed 23.0% of our FY18 forecast. This was on the back of a weaker Australian dollar, as well as lower occupancy rates across all Singapore/ Australia assets except for Caroline Chisholm Centre, though it should be noted that China Square Central was largely impacted by planned vacancies for AEI work at the retail podium at 18 Cross Street.
FCOT reported DPU of 2.4 S-cents, which is flat both q-o-q and y-o-y. On a 9MFY18 basis, FCOT’s DPU of 7.2 S-cents constitutes 75.0% of our full-year forecast.

In our opinion, Alexandra Technopark (ATP) would still remain a challenge for Frasers Commercial Trust’s (FCOT). We believe that slightly more than 20% of total space leased by the two HP entities has been backfilled to 64.8%.
Still, we think that the current AEI at ATP, which is due to be completed in 2H2018, should help to provide a boost to signing rents, as well as spur greater leasing interest.

The 1.6% implied exit NPI yield from the divestment of 55 Market Street has firmly positioned Frasers Commercial Trust’s (FCOT) for future acquisitions. The exit price of S$216.8m comes at a 45% premium to the S$150.0m valuation (as at 1 Jul 2018).
Assuming the divestment proceeds (net of transaction expenses and fees) were used to pare down debt, FCOT’s gearing would drop significantly from 34.7% to 26.5%, as at 30 Sep 2017, on a pro forma basis. Thus, we believe our fair value of S$1.53 for now.

Joseph Ng OCBC Investment Research | https://www.iocbc.com/ 2018-07-26

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