• Stable DPU
• 25.7% return since Apr’18
• FV of S$1.70

7th Consecutive Q of 2.40 S-cents DPU

Frasers Commercial Trust’s (FCOT) 3QFY19 scorecard was broadly within our expectations. Gross revenue fell 7.0% YoY to S$30.2m, on the back of lower occupancy at Alexandra Technopark (ATP), lack of contribution from 55 Market Street (divested on 31 Aug 18) and a weaker AUD, though partially offset by higher rents registered at China Square Central.

NPI of S$19.8m represented a narrower 3.0% YoY dip due to a number of offsetting factors, such as lower maintenance expenses for FCOT’s Singapore properties and Caroline Chisholm Centre, coupled with lower utilities expense for ATP. Distribution to unitholders for the quarter was up 2.5% YoY to S$21.8m, after accounting for contribution from Farnborough Business Park (FBP; equity accounted), distribution from capital returns (~S$6.3m) and the effects of management fees taken in units.

DPU for 3QFY19 was flat YoY at 2.4 Scents, representing 25.0% of our full-year forecast. This represents the 7th consecutive quarter that FCOT has declared a DPU of 2.40 S-cents. We estimate that FCOT still has ~S$153m available for capital top-ups, including the gains from the disposal of 55 Market Street.

Take a Breather

Since our upgrade in Apr’18, FCOT has achieved a total return of 25.7%, outpacing the FTSE Straits Times Real Estate Investment Trust Index by 4.2%pts over the same period. The newly-opened China Square Central should help footfall at FCOT’s 18 Cross Street retail podium, which is expected to be completed in 2H2019.

While the ~344,100 sqft taken up by Google at ATP has helped to boost the asset’s committed occupancy to 93.7% (as of 30 June 19), we believe this has already been welldigested by the market. In our view, accretive acquisitions could serve as the next re-rating catalyst, given FCOT’s healthy balance sheet (29.3% gearing as of 3QFY19).

The remaining 50% stake in FBP or other UK business parks in its sponsor’s portfolio could be potential candidates, but any such plans could likely be on hold, given current Brexit developments. We lower our risk-free rate assumption from 2.3% to 2.0%, given the more dovish interest rate outlook. With a slight drop in our cost of equity assumption, our fair value estimate rises slightly from S$1.69 to S$1.70.

Source: OCBC Research - 23 Jul 2019