Friday, September 21, 2012

CPPUs conversion a positive step for FCOT

Frasers Commercial Trust (FCOT), formerly known as Allco Commercial is Singapore based developer sponsored commercial real estate investment trust (REIT) with commercial properties in Singapore, Australia, and Japan. Their main focus is on growing unit holder value through asset management, investments, and financial management.

CPPU Conversion and Redemption

On August 25th 2012, restriction period of Convertible Perpetual Preferred Units (CPPU) expired. CPPU is a kind of security which has features of Equity and Debt. Every individual who buys CPPU has a lock in period during which he will not be able to convert or do redemption of his units. Frasers Commercial Trust stated that they have not yet redeemed the CPPUs. However close to one million CPPUs were redeemed by CPPU holders at a conversion of S$1.1845 per unit.

CPPUs Issued

It is expected that 878,697 new ordinary units would be issued On October 1st 2012 through the conversion process. This is approximately 0.14% of the total outstanding units. These new units will not have any right to distribution on Frasers Commercial Trust's ordinary units declared between April 1st 2012 and September 30th 2012. It is estimated that approximately 341.5 million issued CPPUs will be left after the conversion.

Expected Keypoint Sale Proceeds Used To Redeem CPPUs

It is expected that FCOT will sell Keypoint, a 25 storey commercial building located at the corner of Beach Road and Jalan Sultan, Singapore by October 8th 2012. The proceeds from this sale are then expected to redeem the CPPUs and reduce its existing borrowings. On April 24th 2012 FCOT stated that they will sell KeyPoint for about $360 million, which will result in the company's value increasing by about $72.8 million.

Fair Value Unchanged

OCBC Investment Research has taken into account the CPPU conversion, and the new ordinary units, but has not changed Frasers Commercial Trusts fair value of $1.23. They do continue to recommend that investors buy units in FCOT because of its growth potential and price to book ratio (P/B0 of 0.88x.
OCBC also believe that Frasers Commercial Trust may be in the final discussion stages with potential tenants to take most of the 85% space in the China Square Central building that was previously occupied by marsh & McLennan. This acquisition and potential interest savings should translate into a stronger portfolio performance for Frasers Commercial Trust.

Financial Information

FCOT have a current market cap of $753.1 million, and an average daily turnover of $0.7 million. Each unit is expected to produce an 11% total return over the next 12 months.

Financial Predictions

Frasers Commercial Trust is expected to grow over the next few years, but their price to earnings ratio (PER) is expected to drop in FY12 because of the sale of Keypoint.
·         Gross Revenue is expected to rise from $117.9 million in fiscal year 2010 to $126.3 million in fiscal year 2013
·         Net property income is predicted to increase from $93 million in FY2010 to $96.9 million in FY2013
·         Distributions per unit, are expected to rise from 5.6 in FY2010 to 7.9 in FY2013
Because of the predicted sale of Keypoint, the amount of funds in investment properties is expected to drop from $1,906.4 million in FY2010 to $1,815.8 million in FY2013.

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