Category: FCOT
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.
FCOT – BT
26% jump in FCOT’s Q2 net property income
FRASERS Commercial Trust (FCOT) yesterday posted a net property income of $23.6 million for the second quarter ended March 31 – up 26 per cent from a year ago.
This helped boost total distributable income, which rose 167 per cent over the same period to $14.5 million. Of this, unitholders’ share was $9.8 million, while holders of Series A convertible perpetual preferred units (CPPU) got a share of $4.6 million.
‘The contribution from Alexandra Technopark together with better performance of the Australian properties and lower financing costs contributed to the increase in distribution income,’ said CEO of FCOT’s manager, Low Chee Wah.
FCOT bought Alexandra Technopark in August last year and the property contributed to earnings for the full second quarter. From Down Under, Central Park and Caroline Chisholm Centre brought in more revenue largely as the Australian dollar strengthened.
Distribution per unit (DPU) was 0.32 cents in Q2. This is 56 per cent less than the 0.72 cents a year ago, as the unit base grew from a rights issue in August last year.
Adjusting for the cash call, DPU in Q2 2009 would have been 18 cents, translating to a 78 per cent year-on-year increase.
Distribution per CPPU in Q2 was 1.36 cents.
For the first half ended March 31, FCOT’s net property income was $47.1 million, rising 27 per cent from a year ago. Total distribution available surged 81 per cent to $26.6 million.
DPU in H1 was 0.56 cents, while distribution per CPPU was 2.74 cents. These distributions will be paid out on May 27.
As at March 31, FCOT’s portfolio had a value of some $1.9 billion. The average occupancy rate was 92.4 per cent, down from 92.9 per cent as at Dec 31 last year.
The trust’s gearing as at March 31 was 40.1 per cent, dropping slightly from 40.4 per cent a quarter ago.
FCOT lost half a cent yesterday to close at 14 cents.
FCOT – SGX
FCOT achieves an 82% increase in distributable income for 2Q DPU up 78%; total distributable income (including CPPU) up 167%
Singapore – 22 April 2010 – Frasers Centrepoint Asset Management (Commercial) Ltd (“FCAMCL” or the “Manager”), the manager of Frasers Commercial Trust (“FCOT”, SGX:FrasersComm) is pleased to announce the Trust’s financial results for the second quarter ended 31 March 2010.
Operationally, for the financial quarter, 1 January 2010 to 31 March 2010 (2Q FY09/10), gross revenue and net property income are respectively 24% and 26% above those of the same period last year.
Total distributable income was up by 167% year-on-year from S$5.42 million to S$14.48 million, of which S$4.65 million is available for distribution to Series A Convertible Perpetual Preferred Units (“CPPU”) holders.
Distributable income to Unitholders increased by 82% to S$9.84 million. This translates to distribution per Unit of 0.32 cents, up by 78% from a year earlier and by 33% when compared to the preceding quarter.
A total distribution of 0.56 cents per Unit and 2.74 cents per CPPU for the first half FY09/10 will be paid on 27 May 2010. Based on the last closing price of the Units of $0.14 on 22 April 2010, this translates to an annualised yield of 8.0%. CPPU holders who hold the CPPUs transferred to them as at books closure date will receive a pro-rata distribution of 0.3466 cents per CPPU for the period from 9 March to 31 March 2010(1). The distribution books closure date for both the Units and CPPUs is 3 May 2010.
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Office REITs – OCBC
Comparing the four office REITs
Vulnerable to negative rent reversions in FY10-11. Many of the leases secured on high rents during the hot 2007-2008 period will be expiring in 2010 and 2011. It is very likely that these leases will be renewed or replaced at much lower levels. This, in turn, will have an effect on revenue and distributable income, in our view. Among the four office REITs we discuss here, Frasers Commercial Trust [FCOT, NOT RATED] has the lowest percentage of NLA expiring (16.9%) in FY10 and FY11. K-REIT Asia [K-REIT, NR] follows with 32.2% of its NLA expiring in FY10-11. CapitaCommercial Trust (CCT) and Suntec REIT (Suntec) will see the most expiring office leases: 52.3% of CCT's gross rental income derived from office space will be up for renewal in FY10-11. Meanwhile, leases on 41.8% of Suntec's office NLA expire in FY10-11. While REITs may be hit by the appetite for newer buildings, we believe tenants will still favor quality assets such as Six Battery Road.
Expect significant re-financing activity. We estimate that S$2.4b of office REIT loans mature in both 2011 and 2012. The bulk of the maturities are for Suntec and CCT loans. We believe the REITs will tap on secured loan facilities, convertible bond issues and medium-term note programs to meet their re-financing needs. Some of the REITs could potentially test the CMBS market but in small amounts. We expect the REITs to start the re-financing process early to take advantage of the easing credit market, the low interest rate environment, and to assuage any remnant investor jitters. Quality sponsors and quality assets will continue to be crucial to securing competitive pricing.
Valuation. Office REITs trade at an average forward yield of 6.9%. They trade at an average price-to-book of 0.71x, which compares favorably to the broader S-REIT sector. We have BUY ratings on both Suntec and CCT as we feel their current valuations more than reflect the challenges facing the office sector. Suntec is one of our top picks for the broader S-REIT sector due to its exposure to the revitalizing Marina Bay area and its oft-forgotten retail portfolio (two Circle Line MRT stations open at Suntec City next month). In addition, we feel that market attitudes towards office REITs may start turning due to increased leasing activity and the supply management tactics taken by office landlords including CCT. Investors who want a purer exposure to the office sector may prefer CCT to Suntec.
FCOT – Phillip
Things Picking Up
• 1Q10 revenue of $29.6 million, net property income of $23.5 million, distributable income available to unitholders of $7.4 million.
• 1Q10 DPU of 0.24 cents.
• Total asset value of $1.9 billion.
• Fair value raised slightly from $0.17 to $0.18, upgrade to Buy
Steady showing
(Note: Financial year-end changed to 30 Sep) FCOT recorded 1Q10 revenue of $29.6 million (+19.1% y-y, +15.5% q-q), net property income of $23.5 million (+26.6% y-y, +17.7% q-q) and distributable income available to unitholders of $7.4 million (-20.2% y-y, +20.3% q-q). 1Q10 DPU was 0.24 cents (-80.9% y-y, +20.0% q-q). Underlying rental income streams were steady, the increase over prior quarters were mostly due to new acquisition and favorable exchange rates. 1Q10 revenue was boosted by the contribution from Alexandra Technopark, which was added to the portfolio in August 2009. The revenue contribution from Australia benefited from the strengthening AUD, while the Japan properties performance were largely flat. Percentage of revenue breakdown is 51% from Singapore, 35% from Australia and 14% from Japan. DPU was 0.24 cents, a big drop from a year ago, due to higher borrowing cost as well as dilution from the rights issue in 2009. However 1Q10 DPU was 20% higher than 3Q09. We believe things are already on the mend as seen from the improving numbers.
FCOT registered a slight decrease of 0.2% in its asset value. Revaluation was carried out on central Park and Cosmo Plaza. The decrease comes from Cosmo Plaza, which is being earmarked for divestment. Total asset value is $1,914.2 million.
Capital management
FCOT completed all recapitalization and refinancing activities in 2009. As at 31 Dec 2009, it has total debt of $823.8 million, of which 60% is SGD loan, 19% is AUD loan and the rest is JPY loan. The constitution of the loan is a deliberate effort by management so as to form a natural hedge on the foreign cash flows. Gearing is 40.4% and the loans are due only in 2012. We believe in the event that FCOT managed to divest Cosmo Plaza and the AWPF wholesale fund, proceeds will be used to pare down debt.
Forecasts
We are slowly gaining confidence in management execution to turn FCOT around from the time when the new management team took over in late 2008. We have seen strong support from the sponsor, Frasers Centrepoint Limited, through the injection of Alexandra Technopark. We also believed that the relationship enabled FCOT to secure credit facilities from the lenders. We did mention in previous reports that repositioning the REIT takes time and management has shown that they are delivering what they have promised. Again we like to echo our view that the transformation is not yet complete and investors have to take a long-term view. We are forecasting a FY10E DPU of 1.26 cents on the back of improving market fundamentals. We are raising our fair value from $0.17 to 0.18 derived from our DCF valuation on a WACC of 7.04%. Upgrade to Buy.