Frasers Commercial Trust - OCBC Investment 2019-07-23: A Good Run Thus Far

FRASERS COMMERCIAL TRUST (SGX:ND8U)

Frasers Commercial Trust - A Good Run Thus Far

FRASERS COMMERCIAL TRUST (SGX:ND8U)’s 3QFY19 scorecard was broadly within our expectations.

Gross revenue fell 7.0% y-o-y to S$30.2m, on the back of lower occupancy at Alexandra Technopark (ATP), lack of contribution from 55 Market Street (divested on 31 Aug 18) and a weaker AUD, though partially offset by higher rents registered at China Square Central.
NPI of S$19.8m represented a narrower 3.0% y-o-y dip due to a number of offsetting factors, such as lower maintenance expenses for Frasers Commercial Trust’s Singapore properties and Caroline Chisholm Centre, coupled with lower utilities expense for ATP.
Distribution to unitholders for the quarter was up 2.5% y-o-y to S$21.8m, after accounting for contribution from Farnborough Business Park (FBP; equity accounted), distribution from capital returns (~S$6.3m) and the effects of management fees taken in units.
DPU for 3QFY19 was flat y-o-y at 2.4 S-cents, representing 25.0% of our full-year forecast. This represents the 7th consecutive quarter that Frasers Commercial Trust has declared a DPU of 2.40 S-cents.
We estimate that Frasers Commercial Trust still has ~S$153m available for capital top-ups, including the gains from the disposal of 55 Market Street.

Since our upgrade in Apr’18, Frasers Commercial Trust has achieved a total return of 25.7%, outpacing the FTSE Straits Times Real Estate Investment Trust Index by 4.2%pts over the same period.
The newly-opened China Square Central should help footfall at Frasers Commercial Trust’s 18 Cross Street retail podium, which is expected to be completed in 2H2019. While the ~344,100 sqft taken up by Google at Alexandra Technopark has helped to boost the asset’s committed occupancy to 93.7% (as of 30 June 19), we believe this has already been well-digested by the market.
In our view, accretive acquisitions could serve as the next re-rating catalyst, given Frasers Commercial Trust’s healthy balance sheet (29.3% gearing as of 3QFY19). The remaining 50% stake in Farnborough Business Park or other UK business parks in its sponsor’s portfolio could be potential candidates, but any such plans could likely be on hold, given current Brexit developments.
We lower our risk-free rate assumption from 2.3% to 2.0%, given the more dovish interest rate outlook. With a slight drop in our cost of equity assumption, our fair value estimate rises slightly from S$1.69 to S$1.70. Downgrade from BUY to HOLD.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2019-07-23

SGX Stock Analyst Report HOLD DOWNGRADE BUY 1.70 UP 1.690