Frasers Commercial Trust’s revenue up 3.8% to S$30.4m in 4Q11

Moderate growth within expectations

4QFY11 DPU in line. Frasers Commercial Trust reported 4QFY11 gross revenue of S$30.4m, up 3.8% YoY due to higher contribution from Central Park and KeyPoint.

This was partially offset by loss of revenue contribution from Cosmo Plaza following its divestment, and lower revenue from 55 Market Street as a result of negative rental reversion.

NPI, on the other hand, was up 4.8% YoY to S$24.3m, while distributable income was up 1.0% YoY to S$14.4m. For the quarter, DPU stood at 1.52 S cents, representing a slight 1.9% YoY decline. This brings the full-year DPU to 5.75 S cents, which is roughly within our and consensus expectations of 5.6 S cents and 6.0 S cents, respectively.

Improvement in occupancy rates. FY11 portfolio average occupancy rates tracked a substantial improvement from 90.8% in FY10 to 98.0%, underpinned by healthy rates of 97.8% for Singapore and 99.8% for Australia. We note that 55MS was one of the key drivers for the robust occupancy growth in Singapore. This helped to minimize the fall in its gross revenue contribution to 13.0%. In Japan, the occupancy rates remained unchanged at 93.6%.

Healthy portfolio WALE. As at 30 Sep, the weighted average lease to expiry was about 3.6 years, aided by long Australian portfolio duration of 6.8 years. For FY12, 29.3% of the gross rental income is due for renewal, of which 16.0% is attributable to the expiry of China Square Central master lease arrangement. Management highlighted that the annualized half-year unaudited net operating income for the underlying leases at the property is above the master lease net rent of S$17.55m per annum, hence presenting an opportunity for FCOT to enhance value. As such, it intends not to renew the lease but to take over the management of the property upon its expiry in Mar 2012 (committed occupancy increased to 95.7% in Sep from 94.5% in Jun).

Business outlook appears challenging. Looking ahead, FCOT expects the business environment to remain challenging, amid the current uncertain market condition and ongoing Eurozone debt situation. In view of this, it will focus on its active strategy to improve portfolio occupancy and rental rates while keeping its expenses low. The group will also embark on an early re-financing exercise of its existing debts due next year end to take advantage of the prevailing low interest rate environment. We are putting our Buy rating and S$0.87 fair value UNDER REVIEW due to a change in analyst coverage.