Fasers Commercial Trust
LAST CLOSE: S$1.28
FAIR VALUE: S$1.47
Fasers Commercial Trust (FCOT) is a developer-sponsored commercial real estate investment trust. FCOT invests primarily in quality income-producing commercial office properties in both Singapore and Australia, with its current portfolio consisting of China Square Central, 55 Market Street, Alexandra Technopark, Caroline Chisholm Centre and Central Park.
Enjoying a sustainable stream of distributions. We like FCOT for the sustainability of its distributions, which is supported by its well-diversified lease expiry profile, built-in rents and its blue-chip tenant profile.
Embarking on a growth path. More importantly, FCOT is expected to witness a significant uplift in its distributions in FY14 and FY15. Drivers behind the projected distribution growth include the full-year impact of the redemption and conversion of convertible perpetual preferred units (CPPUs) in FY13, expiry of master lease at Alexandra Technopark and positive rent reversions across its portfolio assets. Moreover, we note that FCOT has a visible acquisition pipeline, which could provide it with an additional layer of growth.
Given that FCOT’s CPPUs are held at a cost of 5.5% per annum, the redemption and conversion of CPPUs in FY13 means that a significant overhang on the underlying distributions has been removed. Meanwhile, when its master lease at Alexandra Technopark expires, FCOT will be able to command higher current market rents and this is estimated to translate into an additional NPI of S$5.0mil from Alexandra Technopark.
Attractive valuations. FCOT’s FY14 yield is projected at 7%, which makes it a very attractive yield play among the office REITs (average yield 5.9%). On a price-to-book (P/B) basis, FCOT also looks relatively more attractive to its REITs and business trust peers, with a P/B ratio of 0.87 (REITs average P/B is 0.98).
Initiate with a BUY. We initiate coverage on FCOT with a BUY recommendation and a FV of S$1.47. This implies a total potential return of 21.4%.
Publish date: 12/11/13