Lifted by Alexandra Technopark

At a Glance

• Stable 1Q10 pulled up by Alexandra Technopark
• Earnings stable with 86.5% of income secured for FY10
• Maintain HOLD, TP S$0.14

Comment on Results

Results posted no surprises. Gross revenue and net property income was 19.1% and 26.6% higher at S$29.6m and S$23.5m respectively due to stronger AUD vs S$ and a full quarter’s contribution from Alexandra Technopark. The increase was partially offset by loss of income at Central Park and lower occupancies at Cosmo Plaza. Total distributable income was 31% higher at S$12.1m of which S$4.7m will be payable to its CPPU holders. Distributable income amounted to S$7.4m, which translated to DPU of 0.24 Scts.

Looking within for growth. Leases expiring in FY10F, which accounted for 13.5% of topline, are largely from Keypoint and Central Park. For this year, management will embark on AEI activities for Keypoint to boost occupancies and tenant retention, further strengthening its position to capitalize on its increased accessibility with the completion of Circle line Nicholl Highway MRT Station. In addition, the manager continues to look to divest Cosmo Plaza, which reported a further S$3.9m devaluation to S$50.1m.

Recommendation

Maintain HOLD, TP S$0.14 maintained. We believe that it has yet to fully complete its portfolio restructuring with the proposed sale of its Japanese assets. Coupled with a weak office outlook, near term re-rating catalysts appear lacking. As such, we maintain our HOLD call and no change to our TP of S$0.14.

FCT to buy Northpoint 2, Yew Tee Point for S$290.2 mln

Shopping centre real estate investment trust Frasers Centrepoint Trust (FCT) is planning to buy Northpoint 2 and Yew Tee Point for $164.55 million and $125.65 million respectively.

The trust’s manager has proposed an equity fund raising of up to 152 million new units in FCT to part finance the acquisitions, with the balance to be funded by borrowings.

FCT unitholders will vote on the proposed transactions at an extraordinary general meeting on Jan 25.

FCT chairman Philip Eng said: ‘The proposed acquisitions …reinforce FCT’s positioning as a leading Singapore retail REIT.

With these proposed acquisitions, FCT’s portfolio value will grow to $1.5 billion.

The addition of these two malls would increase FCT’s already strong position in the resilient suburban retail property market and improve income diversification.’

FY09 Results

Frasers Commercial Trust (FCOT) announced results for 9MFY09, which is also the full year result for FY09 because the financial year-end was changed from 31 Dec to 30 Sep. For the 3 months ended 30 Sep 09, gross revenue came in at $25.7 million (- 3.4% yoy, +13.3% qoq), net property income was $20.0 million (-0.6% yoy, +12.3% qoq) and distributable income was $6.1 million (-23.9% yoy, +10.4% qoq). Distribution per unit (DPU) for the quarter was 0.2 cents and for the 9 months, total DPU was 1.65 cents.

On the overall, financial performance was better in FY2008 compared to FY2009. The reasons were due to the cessation of income support from Central Park and Keypoint, and also the average exchange rate was stronger in FY2008. Exhibit 1 and 2 show the corresponding dip in earnings contribution from Singapore and Australia when the income support ended. For 3QFY09, revenue from Singapore was boosted by the addition of Alexandra Techno Park’s contribution. Favourable foreign exchange movement in the AUD in 3QFY09 over 2QFY09 also contributed to the better quarterly Australia properties performance. Revenue contribution from the Japan properties registered slight increase, however a key tenant of Cosmo Plaza continues to be in distress, thereby affecting Japan properties performance.

FCOT took a further $29.9 million revaluation write-down on its assets in this quarter. FY2009 revaluation loss totals $174.8 million. With the addition of Alexandra Techno Park, current portfolio size is $1.94 billion. Management is still looking to dispose of the AWPF investment and Cosmo Plaza. FCOT has total borrowings of $803.0 million and gearing is currently 38.9%. The debt will mature in 2012.

Valuation and recommendation. In our opinion, the office market remains weak and should remain subdued at least in the next quarter. For FCOT, master leases of Alexandra Technopark and China Square as well as the annual rent increment of Caroline Chisholm provide stability to its revenue. We estimate this contribution to be approximately 46% of FY10F revenue. FCOT will also be drawing down its AUD loan facility so as to create a natural hedge of its revenue contribution from Australia, this will then minimize foreign exchange uncertainty leading to greater stability of DPU.  As mentioned in our previous report, the repositioning of FCOT by management takes time to crystallize and we are now seeing plans being implemented into action. We roll forward our DCF valuationinto FY10F, which gives us a fair value of $0.17. Our DPU forecast for FY10F is 1.11 cents, which translates to a dividend yield of 7.16%. Maintain Hold recommendation. Our valuation has not factor in the conversion of the Convertible Perpetual Preferred Units (CPPU). The conversion price of the CPPU is $0.2369.

FCOT Q3 distributable income falls 23.9%

Factors include lower revenue and higher finance costs

FRASERS Commercial Trust (FCOT) has reported a 23.9 per cent fall in third-quarter distributable income to $6.1 million, dragged down by lower revenue and higher finance costs. Distribution per unit – after adjustment for rights units – slipped to 0.2 cents per unit from 0.27 cents.

For the three months ended September, gross revenue dipped 3.4 per cent to $25.7 million. This was mainly due to revenue declines in KeyPoint, Japan’s Cosmo Plaza and Australia’s Central Park. In particular, Cosmo Plaza had lost a major tenant, while takings from its Australian properties were affected by the weakening of the Australian dollar and expiry of leases. However, the loss of revenue was partially offset by a $2.2 million contribution from Alexandra Technopark, which was acquired in August.

Property operating expenses went down 11.9 per cent to $5.7 million. This resulted in a net property income of about $20 million, little changed from the same quarter last year. Finance costs, however, went up 15.8 per cent to $12.7 million due to higher borrowing costs. ‘Under terms of the debt facilities extension negotiated in 2008, the interest margin of these facilities increased with effect from 1 July 2009,’ the trust’s manager Frasers Centrepoint Asset Management said.

FCOT’s portfolio consists of ten properties spanning Singapore, Japan and Australia. As at Sept 30, their combined asset value amounted to $1.9 billion.

‘For the coming year, management will seek to improve the portfolio through asset enhancement initiatives for some of the properties,’ said Low Chee Wah, CEO of the trust’s manager. ‘This, along with rigorous expense control and proactive tenancy management, will be key to lifting portfolio performance in the coming periods.’

For the first nine months, distributable income was $17.1 million. Gross revenue was $72.3 million. The trust has changed its financial year end to September, from December. Unitholders will receive the distribution of 0.20 cents on Nov 26. Distributions will resume to half-yearly payment from the end of the first half of FY2010. FCOT was last traded 15.5 cents.

Frasers Commercial’s DPU & distributable income fall on-year

Frasers Commercial Trust (FCOT) announced on Friday a third quarter distribution per unit of 0.2 cent.

That is 26 per cent lower than the 0.27 cent DPU for the same period last year, after making adjustments for a rights issue.

Distributable income for the period ended in September fell by 24 per cent on-year to S$6.14 million, though it was up by 10.4 per cent when compared to the previous quarter.

Net property income suffered a less drastic drop, declining 0.6 per cent on-year to S$19.9 million. Compared to the previous quarter, FCOT said its net property income increased by over 13 per cent.

The improvement was driven by the initial five weeks of ownership of Alexandra Technopark, a stronger Australian dollar and better occupancy levels.

FCOT said the last stage of its recapitalisation and refinancing will be completed in the next quarter.

Earlier this year, it announced a rights issue to raise S$214 million.