Frasers Commercial Trust gets a go-ahead to top-up Keypoint’s lease

Following the receipt of outline planning permission (OPP) from URA for the redevelopment of its Keypoint property into a mixed development, FCOT announced that the Singapore Land Authority has granted in-principle approval for it to top-up the lease to a fresh 99-year lease.

The stage is now set for a final decision on Keypoint. FCOT has quite a few options: It could sell the property outright to its sponsor F&N or a third party, jointly develop the property, or continue to retain the property for office use. Whichever option it eventually chooses, the OPP has given FCOT tremendous flexibility to re-shape and optimise the portfolio, in our view.

We are positive on the REIT given its ability to extract DPU growth from multiple fronts, including: 1) positive rental reversions for China Square Central and Central Park, 2) potential interest savings as the group re-financed its highcost loans expiring in 2012, 3) backing from a well-established conglomerate F&N which also provides a ready pipeline for acquisition assets.

The REIT has a highly resilient income stream with over 60% of its rental income backed by master leases or long leases with blue-chip customers. Given its prospective yield of 8% compared to its peers’ 5.5-7% range and P/B of 0.6x, the stock has the makings of a winner over the next 12 months.