• 4QFY15 DPU jumped 14% YoY
• FY15 rental reversion of 16.8% for Singapore
• FY16F distribution yield of 7.1%

4QFY15 results within our expectations

Frasers Commercial Trust (FCOT) recorded a good set of 4QFY15 results which came in within our expectations. Gross revenue jumped 16.9% YoY to S$37.2m. This was largely driven by higher income contribution from the underlying leases of Alexandra Technopark following the expiry of the master lease in Aug 2014, maiden contribution from 357 Collins Street which was acquired on 18 Aug 2015, but partially offset by a weaker AUD. DPU rose 14.0% to 2.52 S cents. For FY15, FCOT’s gross revenue increased 19.6% to S$142.2m, and this made up 102.8% of our full-year forecast. DPU of 9.71 S cents was an all-time high for FCOT, and represented a growth of 14.1%. This was 2.5% above our forecast.

Still room for growth ahead

FCOT’s occupancy rates remained largely stable at 95.4% (+0.3 ppt QoQ), while overall weighted average rental reversions of 16.8% were achieved for its Singapore portfolio in FY15. Management guided that it does not expect to see the same level of strong double-digit rental reversions in FY16, which is understandable, given the looming office supply in Singapore and the narrower gap between its portfolio market rents and market rates. In any case, we note that FCOT only has a low lease expiry of 7.7% (as a percentage of total gross rental income) in FY16 for China Square Central and 55 Market Street combined.

Growth in FY16 would be driven by built-in step-up rents for some of its leases (53.7% of gross rental income with a weighted average fixed step-up of 3.9%) and a full-year contribution from its recent 357 Collins Street acquisition. We believe management will also continue its policy of hedging 100% of its estimated distributable income from Australia on a 6-9 months rolling basis.

Reiterate BUY

We lower our fair value estimate from S$1.65 to S$1.59 as we factor in a larger unit base in our model. As FCOT’s current share price still offers a potential capital upside of 14%, coupled with an attractive FY16F distribution yield of 7.1%, we reiterate BUY on stock.

Source: OCBC Research - 26 Oct 2015