• Secured refinancing for all debts
• Positive growth prospects intact
• Still attractively priced

Refinancing of all loan facilities

Frasers Commercial Trust (FCOT) announced earlier this week that it has entered into agreements with a club of banks for transferable term loan facilities of S$545m and A$135m to refinance its entire existing borrowings. While the interest rates are likely to be comparable, we view this as a major positive move given that all the new facilities will be unsecured and that the debt maturity profile will be significantly enhanced. Specifically, we expect FCOT’s unencumbered asset ratio to improve from c. 20% to 100% and its average debt duration to be extended to 4.3 years from c. 1.4 years as at 30 Jun following the drawdown of the new facilities (expected before 30 Sep).

Expecting robust rental growth

For the year ahead, we remain positive on FCOT’s performance. Apart from benefitting from the recovery in the Singapore office market, we note that the master lease at Alexandra Technopark (ATC) has expired last month and that FCOT is poised for strong rental uplift with the direct management of the property. Based on our projections, there may be 24% gap between the underlying passing rent and master lease rent. As ATC contributed a significant 23.3% to FCOT’s 3QFY14 NPI, we believe the rental growth in FY15 is likely to be material. This, we note, is in addition to the improved performance at China Square Central, which enjoyed higher leasing demand after its asset enhancement initiatives and the opening of Telok Ayer MRT station.

Maintain BUY

FCOT is currently trading at 0.88x P/B, lower than the S-REITs sector average of 1.01x P/B. We believe FCOT is likely to see a net revaluation gain for its portfolio assets when it reports its FY14 results in Oct, thus making it more attractive relative to its listed peers. Forward yield is also compelling at 7.2% in our opinion. We maintain BUY with unchanged fair value of S$1.48 on FCOT.

Source: OCBC Research - 17 Sep 2014