FCOT – DBSV

Looking secured at half time

• DPU of 0.32 Scts in line with expectations

• 89% of FY10F income secured

• Maintain HOLD, TP S$0.16

Stability in results. Frasers Commercial Trust (FCOT) reported a 2Q10 DPU of 0.32 Scts in line with projections. Gross revenues and net property income are 24% and 26% higher by 24% yoy due to (i) impact of stronger AUD vs S$ on its Australian sourced income partially offset by lower incomes from Japan due to the weakening yen, (ii) contribution from Alexandra Technopark which was acquired back in Aug’09. Interest costs declined by 17%due after the draw-down of new loan facilities back in Dec’09. As such, distributable income to unitholders net CPPU holders grew by 82% yoy to S$9.8m.

Majority of FY10F incomes secured, but renewals in Singapore could be challenging. As of 1H10, FCOT have secured c89% of its incomes. For renewals for the remaining 11% in 2H10, we are expecting some pressure on topline from Singapore (comprising c3% of gross portfolio rent) given that current asking rents for 55 market street and Keypoint are lower than expiring monthly rents of S$7.40 psf and S$5.6 psf respectively. Australia’s performance is likely to remain stable given expected stronger rental reversions at Central Park property in Perth, given low passing rents (average of A$345 psm pa), backed by a strong AUD vs S$ exchange rate.

Keeping asset portfolio updated & relevant. Apart from organic growth, FCOT is evaluating enhancement plans at Keypoint and China Square Central, aimed at boosting occupancy levels there. In addition, the manager is also looking at acquisition opportunities in Singapore and Australia and will only execute these plans if it is accretive to the trust.

Maintain HOLD, TP S$0.16. While we acknowledge that FCOT trades at an attractive 0.5 x P/BV with relatively secured FY10-11F yields of 7.9-8.3%, we believe that catalysts to emerge upon more certainty from its operations and its asset enhancement plans.