FCOT – DBSV

Strong uplift from refinancing

• Refinancing of its S$500m loan at 100 bps lower rate

• FY13F DPU to increase by up to 9.7%

• Maintain BUY at a revised TP of S$1.26

Refinancing of its S$500m loan. Frasers Commercial Trust (FCOT) announced that they have entered into facility agreements for the following (1) a 3-year term loan facility amounting to S$320m (at a rate of SOR + 1.55% p.a.) and (2) a term loan facility of S$185m (at a rate of SOR +1.83% p.a.). The S$320m facility will be secured by a mortgage over FCOT’s interest in China Square Central and 55 Market Street while the S$185m facility will be secured over its interest in Alexandra Technopark. These new facilities are expected to be drawn down before June to refinance its S$500m term loan expiring in November 2012.

Strenghtening balance sheet. Via the refinancing, the trust is expected to (i) reap significant interest savings upon refinancing. We estimate annual savings of cS$5m as the weighted average cost of the new facilities is SOR +1.65%, much lower that the expiring term loan (SOR + 2.65%). Assuming that the refinancing takes place before 4QFY12, we expect FY12 DPU to increase by 2.0% and FY13 DPU to increase by 9.7%; (ii) extend FCOT’s debt maturity profile. The break-up of the S$500m loan into two smaller tranches of 3 and 5 year maturities will lengthen the trust’s weighted average debt maturity from 1.36 years to 3.88 years, reducing any risks of a large refinancing exercise in any one year; and (iii) free up the mortgage on Keypoint property, paving the way for a potential sale (subject to shareholders’ agreement in the upcoming EGM).

Maintain BUY, at a higher TP of S$1.26. The trust is trading at 0.74x P/BV and FY12/13 yield of 6.6% – 7.8%. We continue to like FCOT’s pro-active efforts to reshape its portfolio since the beginning of the year. We believe rerating catalysts from the stock would depend on the reit’s ability to deploy Keypoint proceeds to the repurchase of CPPUs or share buyback (resolutions in the upcoming EGM) which are more yield enhancing in our view compared against debt repayment. Maintain BUY at a slightly higher DCF-backed TP of S$1.26.