Frasers Commercial Trust’s (FCOT) 1QFY12 DPU of 1.51 S cents is consistent with both consensus and our estimates, forming 24.3% of consensus/our full-year DPU projection. Looking ahead, we believe FCOT performance is likely to remain robust. We understand that FCOT will be taking over the management of China Square Central upon the expiry of the master lease on 29 Mar. We believe FCOT is able to negotiate better rental terms with the underlying tenants. We also see potential for it to benefit from the low interest rate environment, as management actively seeks early refinancing for its borrowings. Maintain BUY with unchanged fair value estimate of S$0.87.
Results were in line with expectations. Frasers Commercial Trust (FCOT) reported a strong set of 1QFY12 results last evening. NPI and distributable income grew by a respective 7.4% and 21.7% YoY to S$24.6m and S$9.6m, driven chiefly by improved occupancy and rental rates at Central Park, Australia (29.7% growth in NPI). This more than offset lower income contribution from 55 Market Street (-6.0%). As a result, DPU for the quarter came in at 1.51 S cents, representing a 20.8% YoY growth after adjusting for unit consolidation done in Feb 2011. This is consistent with both consensus and our estimates, forming 24.3% of consensus/our full-year DPU projection of 6.2 S cents.
Operationally sound. Operationally, we note that FCOT performance has also been stable. The portfolio’s average occupancy rate remained high at 97.6% (98.0% in prior quarter), while the weighted average lease to expiry was still healthy at 3.4 years (3.6 years previously). Singapore’s KeyPoint continued to keep its growth momentum since its trough occupancy level of 66.2% in 2QFY09, reaching a high of 90.2% in the quarter (1.8ppt QoQ rise). In Australia, management also revealed that three new leases at Central Park were secured and were due to commence in Jan and Apr 2012. This is likely to raise the property’s occupancy rate to 99.8% from 96.5%.
Performance likely to remain robust. In the coming quarter, FCOT will be taking over the management of China Square Central upon the expiry of the master lease on 29 Mar. We believe FCOT is able to negotiate better rental terms with the underlying tenants. As at 31 Dec, its leverage remained largely unchanged at 36.8%, with an average borrowing rate of 4.2%. With management’s proactive approach to undertake early refinancing for its borrowings, there is potential for FCOT to benefit from the low interest rate environment. Maintain BUY with unchanged fair value estimate of S$0.87.
Operationally sound. Operationally, we note that FCOT performance has also been stable. The portfolio’s average occupancy rate remained high at 97.6% (98.0% in prior quarter), while the weighted average lease to expiry was still healthy at 3.4 years (3.6 years previously). Singapore’s KeyPoint continued to keep its growth momentum since its trough occupancy level of 66.2% in 2QFY09, reaching a high of 90.2% in the quarter (1.8ppt QoQ rise). In Australia, management also revealed that three new leases at Central Park were secured and were due to commence in Jan and Apr 2012. This is likely to raise the property’s occupancy rate to 99.8% from 96.5%.
Performance likely to remain robust. In the coming quarter, FCOT will be taking over the management of China Square Central upon the expiry of the master lease on 29 Mar. We believe FCOT is able to negotiate better rental terms with the underlying tenants. As at 31 Dec, its leverage remained largely unchanged at 36.8%, with an average borrowing rate of 4.2%. With management’s proactive approach to undertake early refinancing for its borrowings, there is potential for FCOT to benefit from the low interest rate environment. Maintain BUY with unchanged fair value estimate of S$0.87.
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