OCBC on 7 June 103
Frasers Commercial Trust (FCOT) announced that it has successfully exercised its right of redemption in respect of 2.2m Series A Convertible Perpetual Preferred Units (CPPUs). This, together with the redemption of 157.1m CPPUs in Apr, is likely to provide FCOT with further DPU uplift going forward. We also understand that FCOT has been granted a provisional permission (PP) by URA for the proposed additions and alterations to the existing commercial development at China Square Central and erection of a new hotel block on 18 Cross Street, Singapore earlier this week. While FCOT highlighted that it is still in the preliminary stage of exploring all options with regard to the property, we believe FCOT may possibly divest the hotel space or capitalize on its sponsor’s capabilities to develop the hotel. Either way, we are positive on the news as FCOT could use the proceeds from a sale to pare down its aggregate leverage or enhance its growth profile through the development. We continue to like FCOT for its growth potential, proactive management approach and compelling P/B of 0.97x. We are keeping our forecasts unchanged but we now tweak our CAPM assumptions to reflect a higher risk-free rate. Maintain BUY with revised fair value of S$1.60 (S$1.66 previously) on FCOT.
CPPU redemption to provide DPU uplift
Frasers Commercial Trust (FCOT) announced that it has successfully exercised its right of redemption in respect of 2.2m Series A Convertible Perpetual Preferred Units (CPPUs). This is consistent with our view that FCOT may attempt to redeem all the CPPUs in issue as the funding cost is relatively high at 5.5%. A total of 12.2m CPPUs will remain outstanding after the exercise. This, together with the redemption of 157.1m CPPUs in Apr, is likely to provide FCOT with further DPU uplift going forward.
Receipt of provisional permission
We also understand that FCOT has been granted a provisional permission (PP) by URA for the proposed additions and alterations to the existing commercial development at China Square Central and erection of a new hotel block on 18 Cross Street, Singapore earlier this week. The terms and conditions include an additional 16,000 sqm GFA for hotel use, which is equivalent to the PP first granted in Jun 2008 (already lapsed). According to the 2008 announcement, the space could potentially accommodate a 10-storey hotel tower of ~350 rooms. While FCOT highlighted that it is still in the preliminary stage of exploring all options with regard to the property, we believe FCOT may possibly divest the hotel space or capitalize on its sponsor’s capabilities to develop the hotel. Either way, we are positive on the news as FCOT could use the proceeds from a sale to pare down its aggregate leverage or enhance its growth profile through the development (although FCOT has an estimated development capacity restriction of ~S$185m and an equity fund raising may be necessary).
Maintain BUY
We continue to like FCOT for its growth potential, proactive management approach and compelling P/B of 0.97x. We are keeping our forecasts unchanged but we now tweak our CAPM assumptions to reflect a higher risk-free rate. Maintain BUY with revised fair value of S$1.60 (S$1.66 previously) on FCOT.
Frasers Commercial Trust (FCOT) announced that it has successfully exercised its right of redemption in respect of 2.2m Series A Convertible Perpetual Preferred Units (CPPUs). This is consistent with our view that FCOT may attempt to redeem all the CPPUs in issue as the funding cost is relatively high at 5.5%. A total of 12.2m CPPUs will remain outstanding after the exercise. This, together with the redemption of 157.1m CPPUs in Apr, is likely to provide FCOT with further DPU uplift going forward.
Receipt of provisional permission
We also understand that FCOT has been granted a provisional permission (PP) by URA for the proposed additions and alterations to the existing commercial development at China Square Central and erection of a new hotel block on 18 Cross Street, Singapore earlier this week. The terms and conditions include an additional 16,000 sqm GFA for hotel use, which is equivalent to the PP first granted in Jun 2008 (already lapsed). According to the 2008 announcement, the space could potentially accommodate a 10-storey hotel tower of ~350 rooms. While FCOT highlighted that it is still in the preliminary stage of exploring all options with regard to the property, we believe FCOT may possibly divest the hotel space or capitalize on its sponsor’s capabilities to develop the hotel. Either way, we are positive on the news as FCOT could use the proceeds from a sale to pare down its aggregate leverage or enhance its growth profile through the development (although FCOT has an estimated development capacity restriction of ~S$185m and an equity fund raising may be necessary).
Maintain BUY
We continue to like FCOT for its growth potential, proactive management approach and compelling P/B of 0.97x. We are keeping our forecasts unchanged but we now tweak our CAPM assumptions to reflect a higher risk-free rate. Maintain BUY with revised fair value of S$1.60 (S$1.66 previously) on FCOT.
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