• 4QFY14 DPU up 6.2% YoY
• Positive rental reversions
• Healthy office momentum

4QFY14 results met our expectations

Frasers Commercial Trust (FCOT) 4QFY14 results came in within our expectations. Gross revenue grew 10.5% YoY to S$31.8m, while DPU of 2.21 S cents represented an increase of 6.2%. This was driven by higher rental contribution from the underlying leases following the expiry of the master lease at Alexandra Technopark (ATP), coupled with improved occupancy and rental rates at China Square Central. For FY14, revenue inched up 0.5% to S$118.8m, forming 96.8% of our full-year forecast. DPU grew 8.7% to 8.51 S cents and was spot on with our estimate of 8.5 S cents, due largely to lower-than-expected finance costs. This DPU was a record high for FCOT.

Healthy rental reversions; more to come

FCOT managed to achieve positive weighted average rental reversions of 6.0%-18.4% and 13.7%-21.4% for 4QFY14 and FY14, respectively. We expect this robust momentum to continue, as passing rents for leases expiring in FY15 for China Square Central, 55 Market Street, ATP and Central Park are approximately 23%-27%, 7%-13%, 20% and 25% below the market rate, respectively, based on our estimates. In terms of portfolio valuation, there was a slight increase of 0.7% from S$1,811.4m (as at 30 Sep 2013) to S$1,824.9m (as at 30 Sep 2014). The gain in valuation of its Singapore properties was partially offset by the decline in valuation of its Australia assets (partly due to weaker AUD). Although there is some softness in the Perth office market, the silver lining comes from the fact that there are minimal leases expiring at Central Park in FY15 (0.7% of its portfolio gross rental income).

Maintain BUY

We fine-tune our assumptions following a change in analyst coverage. Our fair value estimate increases from S$1.48 to S$1.50 as we roll forward our valuations. Coupled with a decent distribution yield of 6.8% and 7.2% for FY15F and FY16F, respectively, we reiterate BUY on FCOT.

Source: OCBC Research - 23 Oct 2014