• 2QFY14 DPU up 3.0% YoY
• Singapore assets to continue to deliver
• Weakness in AUD may persist

2QFY14 scorecard largely in line

Frasers Commercial Trust (FCOT) reported 2QFY14 gross revenue of S$28.6m, down 3.7% YoY due to a weaker AUD and lower occupancy at Central Park. NPI dropped 5.8% to S$21.7m, further impacted by higher expenses due to painting works undertaken at Caroline Chisholm Centre. On a cash basis, however, NPI would only be marginally lower by 0.5% at S$21.0m. We note that cash flows from the Australian properties were hedged via forwards and AUD-denominated loans. Over the quarter, FCOT also continued to enjoy savings from its convertible perpetual preferred units (CPPU) distribution. As a result, distributable income and DPU rose by 5.6% and 3.0% YoY to S$13.8m and 2.05 S cents, respectively. We deem the results to be largely within view, as 2HFY14 DPU met 46.1%/47.1% of our/consensus full-year DPU forecasts.

Robust leasing activities

Expectedly, China Square Central (CSC) continued to bolster FCOT’s performance, raking up 14.5% growth in NPI amid higher occupancy and rental rates. This has helped to mitigate the softer showing at its Australian properties, which saw a 15.5% fall in NPI. Nevertheless, portfolio occupancy stayed at a high 97.5% (1Q: 97.1%). Leasing activities, particularly in Singapore, also remained robust, as 286,372 sqft or a sizable 12.6% of FCOT’s portfolio NLA, were committed, leased and renewed in the quarter. In addition, rental reversions ranging from 6.4% to 18.2% were achieved for the Singapore properties, reinforcing our view for a firm recovery in the domestic office rental market.

Maintain BUY

Looking ahead, we remain positive on FCOT’s Singapore portfolio, as CSC is expected to continue to benefit from its asset enhancement works and better connectivity with the opening of Telok Ayer MRT station, while Alexandra Technopark is likely to see meaningful rental uplift upon the master lease expiry in Aug. For its Australian assets, we believe the income may continue to suffer from weaker AUD, based on Bloomberg consensus forecasts. As such, we are making minor adjustments to our forecasts to factor in the potential weakness; but there is no change to our fair value of S$1.45. Maintain BUY.

Source: OCBC Research - 24 Apr 2014