• Frasers Commercial Trust's 4Q/FY9/18 DPU of 2.4/9.6 Scts in line with expectations.
• Expect continued income pressure from Alexandra Technopark; healthy balance sheet gives room for inorganic growth opportunities.
• Maintain HOLD with an unchanged Target Price of S$1.50.

4QFY9/18 results highlights

• Frasers Commercial Trust (FCOT) reported 4Q distribution income of S$21.4m, +10% y-o-y despite a 15% y-o-y decline in topline, supported by contributions from Farnborough Business Park, higher capital distributions and taking 100% of management fees in units.
• For FY18, Frasers Commercial Trust's distribution income rose 5% y-o-y to S$82.7m (DPU: 9.6 Scts), making up 99.6% of our full-year forecast.

Gross revenue was stable q-o-q

• Gross revenue fell y-o-y due to the sale of 55 Market St as well as lower occupancy at Alexandra Technopark, China Square Central (CSC) and Central Park, and weaker A$; however, it remained relatively flat q-o-q.
• Actual portfolio occupancy was at 79.5% at end- 4QFY9/18 although committed occupancy was higher at 83.4% with a higher take-up in Singapore of 75.7% (72.2% in 3QFY18). Committed occupancy in Australia was at 89% during the quarter.
• Looking ahead, Frasers Commercial Trust has a remaining 13.1% and 10.6% of income to be re-contracted in FY19/20. The bulk of FY19 expiries are at Alexandra Technopark and China Square Central .

ATP to continue to experience income volatility

• Following the completion of its asset enhancement initiative (AEI) at Alexandra Technopark, leasing activity has picked up and committed occupancy rose to 70.2% at end-4Q vs. 64.2% at end-3Q. Demand came from trade sectors such as pharma, multi-media, shipping and business services. However, we anticipate income from this property could remain volatile over FY19 as HP has a remaining 93,000 sq ft of leases expiring in Dec 18. This will continue to drag earnings outlook.
• Meanwhile, the AEI at China Square Central remains on track for completion in mid-2019, with the new 304-room Capri by Fraser hotel completing earlier, in Mar 2019.
• Co-working space operator JustCo has committed to lease 34,500 sq ft of retail podium space, bringing pre-commitment rate for the podium to 40%.
• In tandem with the improving Singapore office leasing market, FCOT is starting to see positive rental reversions at this property.

Low gearing; no major refinancing needs till FY20

• Following the sale of 55 Market St, Frasers Commercial Trust had pared down its debt. As a result, gearing was low at 28.3% at end-4QFY18. This provides the trust with balance sheet capacity to tap inorganic growth opportunities.
• With the reduction in debt, there are no major refinancing needs until FY20.

Maintain HOLD

• We tweak our FY19-20 DPU marginally and introduce FY21 estimates. We maintain HOLD and DDM-based Target Price of S$1.50.
• Frasers Commercial Trust (FCOT) is trading at 6.8% FY19 DPU yield.
• Re-rating catalysts could come from new accretive acquisitions while downside risks include longer-than-expected vacancy at ATP.