Friday, July 26, 2013

Frasers Commercial Trust: Rising to the top (DBSV)

Frasers Commercial Trust,
Buy S$1.34,  
Rising to the top
Price Target : 12-Month S$ 1.61 (Prev S$ 1.69)
•3Q13 results in line
•Operational outlook stable; expiry of lease at Alexandra Technopark in 2014 could lead to higher earnings
•BUY, revised TP of 1.61

3Q13 DPU of 219 scts is in line. Frasers Commercial Trust (FCOT) reported a 16% and 13% y-o-y decline in gross revenue and NPI to S$30.0m and S$23.1m, respectively. The drop is largely due to the divestment of Keypoint and its Japanese properties, and a weaker AUD-SGD exchange rate. This was partially offset by contribution from the additional 50% stake in Caroline Chisholm Centre and Central Park. However, savings from lower interest expenses (all-in cost of 2.8%) and the repurchase of its CPPUs (funded by the proceeds from the sale of Keypoint), resulted in a 31.2% y-o-y uplift in distributions to S$14.4m, translating to a DPU of 2.19 Scts.

Our View
Operational outlook stable; rental reversions positive. Stripping out its divestments, 2Q13 net property income would have increased 3.7%, attributable to stable operations. Portfolio occupancies remain healthy at 98.1% (97.4% and 99.5% for its Singapore and Australian properties, respectively), with a long weighted average lease expiry of 4.6 years. Rental reversions in Singapore remain strong, ranging from 0.5% - 17.4%.

Expiry of Alexandra Technopark master lease in Aug 14 presents further upside. Contributing close to 21% of income, the Manager is actively renewing leases at Alexandra Technopark (ATP), mitigating any potential concentration risks for underlying sub-tenancies when the master lease at Alexandra Technopark expires in 2014. We estimate further earnings upside given the higher spread potential of up to cS$5m, given the positive spreads between underlying rentals vs master lease rent levels.

Attractive growth over next 2 years; BUY, TP S1.61. Offering one of the strongest DPU growth profiles, we believe FCOT continues to offer a compelling investment case for investors. Forward yields of 6.0%-7.1% are strong and above the commercial and the sector average. BUY with revised TP of S$1.61 after adjusting our risk free rate assumptions from 2.0% to 2.9%.

Source/Extract/Excerpts/来源/转贴/摘录: DBSV-Research,
Publish date: 25/07/13

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