Frasers Commercial Trust - OCBC Investment 2019-10-23: Deep Pockets To Sustain Attractive Yield


Frasers Commercial Trust - Deep Pockets To Sustain Attractive Yield

  • Frasers Commercial Trust's DPU flat y-o-y at 2.40 S cents.
  • Improving signing rents at Alexandra Technopark.
  • Strong buffer for capital top-ups.

FCOT's 4QFY19 results met our expectations

  • FRASERS COMMERCIAL TRUST (SGX:ND8U)’s 4QFY19 results were in-line with our expectations. Gross revenue rose 1.3% y-o-y to S$32.9m, while NPI inched up 0.5% to S$21.7m. All properties registered higher y-o-y revenue growth, but NPI was down for Alexandra Technopark (ATP) (-0.3%) and 357 Collins Street (- 8.0%). See Frasers Commercial Trust Announcements.
  • DPU for the quarter came in unchanged y-o-y and q-o-q at 2.40 S cents, as management continued to smoothen its DPU profile with distributions from capital returns (S$6.7m in 4QFY19 versus S$5.1m in 4QFY18).
  • For the full-year, Frasers Commercial Trust’s NPI fell 7.4% to S$82.7m, but DPU of 9.60 S cents was similar to FY18 and this also matched our forecast. See Frasers Commercial Trust Dividend History.

Continued ramp-up at Alexandra Technopark post-AEI

  • Following the completion of the AEI at Alexandra Technopark in Jan 2019, management has closed ~490k sq ft of transactions, which of course includes the Google lease (~33.3% of Alexandra Technopark’s NLA). Signing rents in 4QFY19 for the property came in at S$4.30-4.60 psf/month, showing continued improvement and also coming in strongly above the average passing rent of S$3.97 psf/month as at end-2018.
  • Although it was previously highlighted that Microsoft had exercised its rights to end its lease early (77,761 sq ft) in Jan 2020, Frasers Commercial Trust has successfully backfilled 72% of the space and is in advanced negotiations for the balance. We believe rental reversions for the replacement leases have been positive.
  • In local currency terms, Frasers Commercial Trust’s portfolio saw higher valuation for all its properties, with the exception of Caroline Chisholm Centre. Total portfolio value rose 4.4% in SGD terms as compared to end-FY18.
  • While a lot of attention has been focused on WeWork (contributed 2.7% of Frasers Commercial Trust’s gross rental income as at 30 Sep 2019), we understand that its operations at China Square Central are healthy, with underlying utilisation rates >90% and no rental arrears.

Raise Fair Value to S$1.76

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2019-10-23
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.76 UP 1.700