• 1QFY14 DPU up 29.7% YoY
• Positive reversions up to 20.7%
• Well-positioned for rental uplift

1QFY14 results met expectations

Frasers Commercial Trust (FCOT) delivered 1QFY14 NPI of S$22.1m, down 3.5% YoY due to a weaker AUD, lower occupancy at Central Park and absence of contribution from its divested Japan properties. However, the softer NPI was more than offset by a realized gain from its cashflow hedges, lower interest expenses and savings in the convertible perpetual preferred unit (CPPU) distribution following the net conversion/redemption of the CPPUs. As such, distributable income to unitholders jumped 33.4% YoY to S$13.7m, while DPU climbed 29.7% to 2.05 S cents. This falls within market expectations, as the quarterly DPU constitutes 22.9%/23.3% of our/consensus full-year DPU projections.

Portfolio continued to exhibit resilience

China Square Central (CSC) and 55 Market Street were the key performers for 1Q, raking up NPI growth of 15.4% and 9.6% respectively on the back of higher secured rental and occupancy rates. As a result, Singapore portfolio contributed 50% of FCOT’s NPI, up from 47% in the prior quarter. Domestic leasing demand remained relatively buoyant in our view, as positive rental reversions ranging from 10.7% to 20.7% were achieved during the quarter. On the portfolio front, occupancy rate was also stable at 97.1% (4QFY13: 97.9%), while weighted average lease to expiry was largely unchanged at 4.4 years (4QFY13: 4.6 years).

Maintain BUY

Looking ahead, management continues to maintain its positive tone, highlighting that its under-rented portfolio assets and current occupancy rate provide room for further income growth. Specifically, FCOT shared that the opening of the Downtown Line nearby CSC is expected to improve its connectivity and boost its attractiveness. At Alexandra Technopark, we also note that FCOT is currently receiving S$1.80 psf pm net rent for the master lease (vs. S$3.40 gross rent for underlying leases), and is well positioned for rental uplift upon the lease expiry in Aug. Given that the master lease makes up a significant 21.7% of FCOT’s rental income and strong execution by management, we are thus positive on its performance in FY14. Maintain BUY with unchanged fair value of S$1.45 on FCOT.

Source: OCBC Research - 23 Jan 2014