• 3QFY14 DPU flat YoY
• Robust leasing activity
• Strong rental uplift likely at ATC

3QFY14 results mostly in line

Frasers Commercial Trust (FCOT) reported a consistent set of 3QFY14 results last evening. NPI came in marginally lower by 0.7% YoY at S$22.9m, due to the effects of the weakening AUD on the income of FCOT’s Australia properties and higher repair and maintenance expenses for Caroline Chisholm Centre. However, FCOT continued to benefit from savings from its convertible perpetual preferred unit (CPPU) distribution, which led to a 2.9% YoY increase in distributable income. On the back of a larger unit base, DPU stood flat YoY at 2.19 S cents. This brings the 9MFY14 DPU to 6.29 S cents (+9.2%), forming 71.8%/70.7% of our/consensus FY14 distribution forecasts.

Robust underlying performance

We note that leasing activity has remained very robust during the quarter. In Singapore, positive rental reversions ranging from 10.7% to 11.5% were achieved for leases commenced in 3Q, while occupancy rate improved 0.5ppt QoQ to 98.4%. Notably, the office tower at China Square Central attained 100% committed occupancy as it continued to benefit from its recent asset enhancement initiatives and better connectivity with the opening of Telok Ayer MRT station. In Australia, occupancy also inched up by 0.3ppt to 97.3%, whereas an 87.0% jump in secured rents was registered at Central Park following the replacement of a long lease contracted more than 10 years ago with a new tenant. As a result, portfolio occupancy rose to 98.0% from 97.5% in 2Q, and only 2.7% of the remaining portfolio leases will be expiring for FY14.

Maintain BUY

Looking ahead, FCOT shared with us that it will continue to focus on maintaining the high occupancy rates across the portfolio and refinancing its maturing debts. It also reiterated that the upcoming expiry of the master lease at Alexandra Technopark (ATC) in Aug 2014 will further boost the portfolio performance as the average underlying gross rent is twice the net rent received under the master lease. We make some adjustments to our forecasts to reflect a firmer portfolio going forward. Our fair value is raised marginally from S$1.45 to S$1.48. Maintain BUY on FCOT.

Source: OCBC Research - 22 Jul 2014