FCOT – OCBC

A BRAND NEW START

• In-line 4Q performance
  
• Exit of Japan market
  
• Well-positioned for growth
  

Strong 4QFY12 results

Frasers Commercial Trust (FCOT) reported its 4QFY12 results last Thursday. NPI grew by 8.7% YoY to S$26.5m, while distributable income jumped 17.3% to S$11.3m. The strong growth came on the back of higher rental contribution from Central Park and an increased stake in Caroline Chisholm Centre. DPU for the quarter stood at 1.75 S cents (+15.1% YoY) and is consistent with our 4Q estimate of 1.76 S cents (consensus: 1.86 S cents). For FY12, DPU amounted to 6.69 Scents (+16.3%), translating to a 5.6% yield. Starting from FY13, FCOT will commence quarterly distributions. Hence, unitholders will receive its final semi-annual distribution for 2HFY12.

Divestment of Japan properties

FCOT also announced the completion of divestment of its Japan properties, after months of market anticipation. Total consideration was a nominal JPY4 as the holding vehicles for the properties were at an aggregate net liability of S$4.9m. Nevertheless, we view the transaction positively because 1) the Japan properties have been recording weak performance, 2) the divestment would improve portfolio occupancy to 94.9% from reported 93.8%, and 3) weighted average lease to expiry would be extended to 5.0 years from 4.7 years. More importantly, gearing ratio is expected to drop from 36.8% to 28.6% (including partial prepayment of its AUD and SGD loans), with no debt maturing until FY15. This will significantly strengthen its financial position and flexibility, and aid FCOT in seeking the release of two properties from its securitized pool.

Maintain BUY

Regarding the space vacated by MMC at China Square Central (CSC), FCOT also updated that 76% of the space has been re-leased, including 49,000 sqft by GroupM starting Apr 2013. Going forward, FCOT intends to embark on Phase 2 of refurbishment works at CSC by end-2012, which should further enhance its positioning. We are positive on FCOT’s transformation, strong execution and growth potential in FY13. We re-jig our forecasts to incorporate the developments, but our fair value is unchanged at S$1.31. BUY.