Frasers Commercial Trust's net property income plunged 17.4% to $21.9m

Here's what to blame.

According to OCBC Investment Research, Frasers Commercial Trust (FCOT) released its 4QFY13 results last evening. NPI fell by 17.4% YoY to S$21.9m due mainly to continued weakness in AUD and divestments of KeyPoint and Japan properties.

Here's more:

However, the decline in NPI was more than offset by realized gains from currency hedges, lower interest costs and savings in the Series A convertible perpetual preferred unit (CPPU) distribution following the net conversion/redemption of the CPPUs.

As a result, distributable income to unitholders jumped 20.9% to S$13.7m. DPU for the quarter came in at 2.08 S cents, up 18.9% YoY. This brings the full-year DPU to 7.83 S cents (+17.0%), largely in line with both consensus and our DPU forecasts of 7.9 S cents.

Robust underlying performance
The direct management and rejuvenation works at China Square Central (CSC) has proven to be a great success, as it saw a robust YoY growth in NPI of 26.8% amid higher rental and occupancy rates. 55 Market
Street also delivered 10.8% growth in NPI over the quarter.

This helped to cushion the lower translated income from the Australia properties. We note that portfolio occupancy has remained healthy at 97.9%, compared to 98.1% a quarter ago.

Positive rental reversions ranging from 4.4% to 23.2% were also recorded for the leases commenced in 4Q, demonstrating the resilience and quality of FCOT’s assets.

Maintain BUY
Looking ahead, we maintain our view that FCOT will continue to perform as its transformation initiatives over the past year are likely to underpin growth.

We also understand that the Telok Ayer MRT station, which is just at the doorstep of CSC, is expected to open in Dec 2013.

Coupled with the completion of enhancement initiatives around CSC, this is likely to boost its competitive position and growth potential. In addition, management noted that FCOT is receiving a net rent of S$1.80 psf pm at Alexandra Technopark, significantly lower than theunderlying passing gross rent of S$3.50.

As such, income uplift is expected upon the expiry of the master lease in Aug 2014.