Stock Name: Frasers Comm
Company Name: FRASERS COMMERCIAL TRUST
Frasers Commercial Trust: BUY S$0.83; Bloomberg: FCOT SP
Gravitating towards an exciting year!
Price Target : 12-Month S$ 1.05
· Steady portfolio performance with enhancements/ repositioning and capital
management to boost DPU
· Resilient earnings tied by long/master leases
· Attractive valuations; maintain BUY, S$1.05 TP
Multi-pronged growth strategies to drive DPU. In a recent NDR with FCOT,
investors view management's efforts to reshape its portfolio and strengthen
its balance sheet as proactive steps to steer the reit in the right
direction. Performance portfolio has improved remarkably compared to the
last crisis with occupancy standing at a high of 98% and signing rents
moving up nicely. Meanwhile, its balance sheet has improved with gearing at
37% and the imminent refinancing that is likely to lower all-in interest
cost by 50-100 bps. The recent approval for an outline planning permission
(OPP) to redevelop KeyPoint as well as possible asset enhancement plans at
China Square Central (CSC) upon expiry of the master lease in Mar 2012
should further help to optimize portfolio yield.
Stable earnings supported by "sticky" tenant base and long leases.
Excluding CSC's master lease (expiring in Mar 2012), almost half of its
revenue is tied to master/long leases of up to 25 years. This would ensure
resilient and stable earnings, while allowing the trust to enjoy positive
rental reversion. At the same time, we note that rents for its SG portfolio
are competitive, hence it is able to cater to a "niche market" ie cost
conscious small-to mid-size companies or relocating tenants from soon-to be
demolished older buildings. In addition, our scenario study shows that
FY12/13F DPU will only fall by a marginal 2-5% should reversion rents fall
by 5-10% or to 2009 levels for its SG portfolio, hence minimizing downside
risk should there be an economic slowdown.
Attractive valuations at 7.4-7.8% yield. At 0.61x P/BV NAV, FCOT's implied
property yield is significantly higher than the current book cap rates.
Therefore, we see potential for the gap to narrow as the group executes its
multi-pronged strategies. FY11/12F yields of 7.4-7.8% are also much higher
than its peers at 5.6%-6.6%. Maintain BUY at an unchanged DCF-backed TP of
S$1.05.
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Company Name: FRASERS COMMERCIAL TRUST
| Research House: DBS Vickers | Price Call: BUY | Target Price: 1.05 |
Frasers Commercial Trust: BUY S$0.83; Bloomberg: FCOT SP
Gravitating towards an exciting year!
Price Target : 12-Month S$ 1.05
· Steady portfolio performance with enhancements/ repositioning and capital
management to boost DPU
· Resilient earnings tied by long/master leases
· Attractive valuations; maintain BUY, S$1.05 TP
Multi-pronged growth strategies to drive DPU. In a recent NDR with FCOT,
investors view management's efforts to reshape its portfolio and strengthen
its balance sheet as proactive steps to steer the reit in the right
direction. Performance portfolio has improved remarkably compared to the
last crisis with occupancy standing at a high of 98% and signing rents
moving up nicely. Meanwhile, its balance sheet has improved with gearing at
37% and the imminent refinancing that is likely to lower all-in interest
cost by 50-100 bps. The recent approval for an outline planning permission
(OPP) to redevelop KeyPoint as well as possible asset enhancement plans at
China Square Central (CSC) upon expiry of the master lease in Mar 2012
should further help to optimize portfolio yield.
Stable earnings supported by "sticky" tenant base and long leases.
Excluding CSC's master lease (expiring in Mar 2012), almost half of its
revenue is tied to master/long leases of up to 25 years. This would ensure
resilient and stable earnings, while allowing the trust to enjoy positive
rental reversion. At the same time, we note that rents for its SG portfolio
are competitive, hence it is able to cater to a "niche market" ie cost
conscious small-to mid-size companies or relocating tenants from soon-to be
demolished older buildings. In addition, our scenario study shows that
FY12/13F DPU will only fall by a marginal 2-5% should reversion rents fall
by 5-10% or to 2009 levels for its SG portfolio, hence minimizing downside
risk should there be an economic slowdown.
Attractive valuations at 7.4-7.8% yield. At 0.61x P/BV NAV, FCOT's implied
property yield is significantly higher than the current book cap rates.
Therefore, we see potential for the gap to narrow as the group executes its
multi-pronged strategies. FY11/12F yields of 7.4-7.8% are also much higher
than its peers at 5.6%-6.6%. Maintain BUY at an unchanged DCF-backed TP of
S$1.05.
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