• 2QFY16 DPU rose 2.9% YoY
• Minimal leasing risks
• Valuations still attractive

2QFY16 results met our expectations

Frasers Commercial Trust (FCOT) reported its 2QFY16 results which met our expectations. Gross revenue jumped 12.0% YoY to S$39.0m, while DPU increased 2.9% to 2.45 S cents.

Growth was underpinned by the completion of the acquisition of 357 Collins Street in Australia on 18 Aug 2015, higher income contribution from Alexandra Technopark (ATP) and lower repair, maintenance and painting expenses at Caroline Chisholm Centre, but partially offset by higher finance costs and an enlarged unit base.

For 1HFY16, FCOT’s gross revenue rose 11.9% to S$78.6m and this formed 49.3% of our FY16 forecast. DPU of 4.96 S cents represented growth of 2.5% and constituted 50.4% of our full-year projection.

Minimal leasing risks for rest of FY16

Individually, the occupancy of FCOT’s properties remained largely stable, with the exception of China Square Central (CSC), which saw its occupancy dip from 95.1% (as at 31 Dec 2015) to 88.6%. However, this was not unexpected, as certain retail units at CSC were affected by the commencement of construction for the hotel development and addition and alteration works.

CSC’s office tower was fully occupied. On an overall portfolio basis, FCOT’s occupancy stood at 92.6% (-0.3 ppt QoQ). Encouragingly, management achieved positive rental reversions across its Singapore assets despite the challenging leasing environment, with rental uplifts of 2.4%, 5.4% and 5.3% coming in at CSC, 55 Market Street and ATP, respectively.

For the remainder of FY16, FCOT has minimal leasing risks, as only 6.4% of its leases are expiring (as a proportion of portfolio gross rental income).

Reiterate BUY

Although FCOT’s share price has rebounded 13.4% from its YTD trough of S$1.155, we believe valuations are still attractive. The stock is currently trading at FY16F distribution yield of 7.5%, which is approximately 0.5 standard deviations above its 5-year mean of 7.1%. Hence, we reiterate our BUY rating on FCOT, with an unchanged fair value estimate of S$1.42

Source: OCBC Research - 22 Apr 2016