Frasers Commercial Trust

OCBC on 20 Apr 2012

Frasers Commercial Trust’s (FCOT) 1HFY12 DPU was up 13.2% YoY to 3.2423 S cents, forming 48.5% of our DPU forecast. This is slightly ahead of our expectations, considering that FCOT may likely benefit from future earnings uplift following its recent acquisition of the remaining 50% stake in Caroline Chisholm Centre (CTL). While average portfolio occupancy eased marginally to 96.1% due partially to a 1.3ppt QoQ decline in CSC’s occupancy, management revealed that it is mainly due to timing of the tenancy leases, and that fundamentals are still healthy. In the coming quarters, FCOT expects positive income growth to its portfolio, supported by the acquisition and positive rental reversions/ escalations. We maintain our BUY rating on FCOT with a revised fair value of S$0.97, as we incorporate the results into our forecasts.

Good set of results
Frasers Commercial Trust (FCOT) announced its 2QFY12 results last evening. NPI came in within our estimates at S$24.8m (+3.8% YoY), driven primarily by positive rental reversions from Central Park in Perth (+12.0%) and higher share of profits from the master lessee of China Square Central (CSC) in Singapore (+7.9%). Distributable income, on the other hand, increased at a faster-than-expected pace of 7.7% YoY to S$15.9m as a result of lower interest expenses. Consequently, DPU for the quarter stood at 1.74 S cents, up 8.1% YoY. For 1HFY12, NPI rose by 5.6% YoY to S$49.4m, while distributable income climbed 10.4% to S$30.2m. In addition, DPU was up 13.2% YoY to 3.2423 S cents, forming 48.5% of our DPU forecast. This is slightly ahead of our expectations, considering FCOT may likely benefit from future earnings uplift following its recent acquisition of the remaining 50% stake in Caroline Chisholm Centre (CTL).

Healthy occupancy and lease profile
On its operational front, we note that FCOT’s performance was largely stable. Average portfolio occupancy eased marginally to 96.1% from 97.6% seen in 1Q, due partially to a 1.3ppt decline in CSC’s occupancy to 91.2%. However, management revealed that it is mainly due to timing of the tenancy leases (expected to commence in Apr), and that fundamentals are still healthy. Weighted average lease to expiry as at 31 Mar was maintained at 3.4 years, with a comfortable 17.0% of its leases due to expire in FY12.

Maintain BUY
FCOT also provided a relatively upbeat outlook for the coming quarters. While management may likely be more prudent on its investment decisions given that FCOT’s aggregate leverage may trend towards 40% post acquisition of CTL, it expects positive income growth to its portfolio, supported by acquisition and positive rental reversions/escalations. We also understand that FCOT had taken over the management of CSC on 30 Mar and is currently exploring options to rejuvenate the asset. Maintain BUY with a revised fair value of S$0.97, as we incorporate the results into our forecasts.