Frasers Commercial Trust - CGS-CIMB Research 2018-10-19: Focus Still On Portfolio Occupancy

FRASERS COMMERCIAL TRUST (SGX:ND8U)

Frasers Commercial Trust - Focus Still On Portfolio Occupancy

Frasers Commercial Trust's 4Q/FY9/18 DPU of 2.4/9.6 Scts in line with expectations.
Expect continued income pressure from Alexandra Technopark; healthy balance sheet gives room for inorganic growth opportunities.
Maintain HOLD with an unchanged Target Price of S$1.50.

Frasers Commercial Trust (FCOT) reported 4Q distribution income of S$21.4m, +10% y-o-y despite a 15% y-o-y decline in topline, supported by contributions from Farnborough Business Park, higher capital distributions and taking 100% of management fees in units.
For FY18, Frasers Commercial Trust's distribution income rose 5% y-o-y to S$82.7m (DPU: 9.6 Scts), making up 99.6% of our full-year forecast.

Gross revenue fell y-o-y due to the sale of 55 Market St as well as lower occupancy at Alexandra Technopark, China Square Central (CSC) and Central Park, and weaker A$; however, it remained relatively flat q-o-q.
Actual portfolio occupancy was at 79.5% at end- 4QFY9/18 although committed occupancy was higher at 83.4% with a higher take-up in Singapore of 75.7% (72.2% in 3QFY18). Committed occupancy in Australia was at 89% during the quarter.
Looking ahead, Frasers Commercial Trust has a remaining 13.1% and 10.6% of income to be re-contracted in FY19/20. The bulk of FY19 expiries are at Alexandra Technopark and China Square Central .

Following the completion of its asset enhancement initiative (AEI) at Alexandra Technopark, leasing activity has picked up and committed occupancy rose to 70.2% at end-4Q vs. 64.2% at end-3Q. Demand came from trade sectors such as pharma, multi-media, shipping and business services. However, we anticipate income from this property could remain volatile over FY19 as HP has a remaining 93,000 sq ft of leases expiring in Dec 18. This will continue to drag earnings outlook.
Meanwhile, the AEI at China Square Central remains on track for completion in mid-2019, with the new 304-room Capri by Fraser hotel completing earlier, in Mar 2019.
Co-working space operator JustCo has committed to lease c.34,500 sq ft of retail podium space, bringing pre-commitment rate for the podium to 40%.
In tandem with the improving Singapore office leasing market, FCOT is starting to see positive rental reversions at this property.

Following the sale of 55 Market St, Frasers Commercial Trust had pared down its debt. As a result, gearing was low at 28.3% at end-4QFY18. This provides the trust with balance sheet capacity to tap inorganic growth opportunities.
With the reduction in debt, there are no major refinancing needs until FY20.

We tweak our FY19-20 DPU marginally and introduce FY21 estimates. We maintain HOLD and DDM-based Target Price of S$1.50.
Frasers Commercial Trust (FCOT) is trading at 6.8% FY19 DPU yield.
Re-rating catalysts could come from new accretive acquisitions while downside risks include longer-than-expected vacancy at ATP.

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://research.itradecimb.com/ 2018-10-19

SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.500 SAME 1.500