• 2QFY15 DPU jumped16% YoY
• Unlocking value for hotel GFA
• Maiden entry into Melbourne

2QFY15 results within our expectations

Frasers Commercial Trust (FCOT) recorded a solid set of 2QFY15 results, with revenue and DPU increasing by 21.7% and 16.0% YoY to S$34.8m and 2.38 S cents, respectively. This was within our expectations. For 1HFY15, gross revenue was up 22.5% and formed 50.8% of our full-year forecast. DPU of 4.84 S cents translated into growth of 18.0% and constituted 51.1% of our FY15 projections. The strong set of results was driven by higher income contribution from the underlying leases of Alexandra Technopark (1HFY15 NPI +67.2% YoY to S$17.8m) following the expiry of the master lease in Aug 2014 and higher occupancy and rental rates at China Square Central (CSC) and 55 Market Street.

Unlocking GFA value and proposed acquisition in Australia

Following its results release, FCOT also announced two developments. Firstly, it has entered into a conditional agreement with an entity of its sponsor Frasers Centrepoint Limited (FCL), whereby FCL would be allowed to develop a 16 storey hotel at CSC in exchange for a S$44.8m payment (on or before 1 Oct 2015) to FCOT. This would enable FCOT to monetise its unutilised additional GFA of 16,000 sqm, eliminate any development and operational risks, while benefiting from a more vibrant complex in the future. The net proceeds received may be used to smoothen FCOT’s distributions as there will be some impact from the relocation of certain  spaces due to the hotel project. Secondly, FCOT also said that it would be acquiring an office building (357 Collins Street) in Melbourne, Australia, from Australand Property Holdings. The purchase consideration works out to be A$222.5m and is expected to be funded by both debt and equity (mix to finalised). This would allow FCOT to make its maiden entry into the Melbourne CBD office market.

Maintain BUY

FCOT would need to obtain the approval of unitholders at an EGM before both transactions can be completed. In addition, more details would only be available when FCOT releases its circular to unitholders. As such, we hold off adjusting our forecasts for now. Maintain BUY and S$1.65 fair value estimate on FCOT.

Source: OCBC Research - 28 Apr 2015