Frasers Commercial Trust (FCOT)

[greengiraffe]

You think F&N will let a good deal passed meh? They probably think that they have gotten sorchais to pay better price hence the sale to external parties

They should have sold teh Keypoint Building back to their parent F&N like what K REIT did for Keppel GE Towers when they sold it back to Keppel Land. Can get better price!

[touzi]

FCOT has $600 million debt maturing in 2013, is that a concern given the possibility of another financial crisis brewing in europe? I also notice that beleaguered Olympus is a tenant of Valley Point, one of the pipeline assets.

[KopiKat]

FCOT has $600 million debt maturing in 2013, is that a concern given the possibility of another financial crisis brewing in europe? I also notice that beleaguered Olympus is a tenant of Valley Point, one of the pipeline assets.

1. Debts - For REITs, it's always a concern for me, especially after so many financial crisis and seeing my investments vaporized for those who're highly geared and badly managed. However, FCOT now has a strong parent entity and I have better confidence to be vested. As for the $608M debts maturing in 2013, their latest presentations stated they are already in discussions with their bankers for early financing. See pg 22. Their recent sale of KeyPoint @ S$360M ought to give them some leeway in their discussions with their bankers (hopefully lower interest rate, like the recently refinanced A$ debts). I'd also be expecting them to spread that huge sum over a few years.

2. Valley Point - They have yet to acquire it, a bit too early to worry? Let's give them the benefit of doubts that they are fully aware of Olympus problems. Not sure how large a % of office space is being occupied as it may not be a very significant number. Perhaps we can call their IR to check when they do finally announce this acquisition?

Am vested and a fan of Lee Hsien Yang, so take my comments with a huge pinch of salt!

[touzi]

You are right, I forgot that Keypoint sales proceed will help to repay the loan.

I thought LHY did a very good job at SingTel, but his performance at F&N has been just ok. When I attended the F&N AGM, other than his humility, I wasn't impressed. He seemed overly dependent on his lieutenants. Maybe my expectation was too high, afterall he started from a very low base at SingTel whereas F&N was already a well run company before he joined.

Not vested in FCOT, but vested in F&N.

[KopiKat]

Looking at their slides for Investor Presentation for Meetings in Hong Kong, it's interesting to see the impact of this divestment in Pg 11,

DPU : 5.75ct -> 6.19ct
Gearing : 36.1% -> 21.8%

Based on the assumption that, (i) the Sale of KeyPoint and (ii) the entire net proceeds from the Sale of KeyPoint had been utilised to partially prepay the SGD500 million term loan facility under the SGD500 million facility agreement had been effected on 30 September 2011

ie. The proceeds, if used to repay their Term Loan, actually results in a higher DPU!

From their Presentation Slides <Pg 14> posted on SGX on 2-Jul-12,

Pro forma financial effects of the Sale

Scenarios for illustrative purpose only

1.The partial prepayment of the S$500.0 million Term Loan Facility (“Scenario 1”);
2.The funding of the redemption of 50% of the issued Series A CPPUs, with the balance applied towards the Term Loan Partial Prepayment (“Scenario 2”); and
3.The funding of the purchase of 22,431,998 Units and the Partial Series A CPPU Redemption, with the balance applied towards the Term Loan Partial Prepayment (“Scenario 3”)

Compared with FY11 DPU = 5.75ct,

1. Proforma DPU = 6.19ct <+7.7%>
2. Proforma DPU = 6.64ct <+15.5%>
3. Proforma DPU = 6.75ct <+17.4%>

Looks like the Sales Proceeds from KeyPoint (if finalised), MAY be better deployed for Scenario (2) or (3) vs New Acquisitions. Scenario (1) is unlikely as FCOT had just recently refinanced the $500M Term Loan <Pg 26>.

Let's see whether they'll surprise us with a Scenario (4) ie. acquire new assets from their sponsor...

[lonewolf]

Let's see whether they'll surprise us with a Scenario (4) ie. acquire new assets from their sponsor...

How about Scenario (5) purchase NOL freehold headquarter building and do an AEI to increase rental??

(Vested)

[KopiKat]

Let's see whether they'll surprise us with a Scenario (4) ie. acquire new assets from their sponsor...

How about Scenario (5) purchase NOL freehold headquarter building and do an AEI to increase rental??

(Vested)

Sell one old building to buy another? See their rationale for selling KeyPoint <pg 12>,

Rationale
–34 years old building which faces design and structural obsolescence
–Only 62 years leasehold tenure remaining
–Requires a significant amount of additional capital expenditure to be spent in order to stay competitive

Not a building expert though and not sure how much AEI is required for NOL HQ but I think Scenario (5) is very remote. Unless they plan to get re-zoning approval (to include residential) and after getting it, sell it off for a hefty profit citing the same rationale. Hey! This could be a good biz model to make good additional profits...

[lonewolf]

IMHO, the rationale by the REIT manager is just a spin. They have to come up with a reason to sell after all right?

And the rationale for one entity to sell is also another rationale for another entity to buy. Correct? So whose 'rationale' is correct?

I like yr 're-zoning' idea but dun recall many residential component in that area. So who know?

[KopiKat]

Extracts from DBSVickers report on 'Singapore Property Companies' dated 9 Jul 12 (pg 7),

Three frequently asked questions (and response by management)

1. How extensive would China Square Central’s AEI works be?
FCOT together with Far East Organization and The Great Eastern Life Assurance announced that they will be undertaking asset enhancement initiatives (AEI) to revitalise the China Square Precinct. The link way will cost an estimated $14 million which will be shared equally among the three partners. On top of that, FCOT will invest another S$5m to spruce up the lobby. The whole project is likely to complete in February 2013.

2. Leasing enquiries for China Square Central with 43.3% of the leases in terms of revenue expiring in FY12?
About 12.1% have been leased and they are in talk with prospective tenants to lease out the remaining space. The management guided that they should be able to lease out the space vacated by Marsh and McLennan as rents remain competitive vs new builts, although some downtime in terms of occupancy could be expected.

3. Is management looking to divest its Japanese assets?
Management would be focusing in two key markets Singapore and Australia - and are keen to divest its Japanese exposure, possibly within a year when opportunities arises.

[KopiKat]

Looking at their slides for Investor Presentation for Meetings in Hong Kong, it's interesting to see the impact of this divestment in Pg 11,

DPU : 5.75ct -> 6.19ct
Gearing : 36.1% -> 21.8%

Based on the assumption that, (i) the Sale of KeyPoint and (ii) the entire net proceeds from the Sale of KeyPoint had been utilised to partially prepay the SGD500 million term loan facility under the SGD500 million facility agreement had been effected on 30 September 2011

ie. The proceeds, if used to repay their Term Loan, actually results in a higher DPU!

From their Presentation Slides <Pg 14> posted on SGX on 2-Jul-12,

Pro forma financial effects of the Sale

Scenarios for illustrative purpose only

1.The partial prepayment of the S$500.0 million Term Loan Facility (“Scenario 1”);
2.The funding of the redemption of 50% of the issued Series A CPPUs, with the balance applied towards the Term Loan Partial Prepayment (“Scenario 2”); and
3.The funding of the purchase of 22,431,998 Units and the Partial Series A CPPU Redemption, with the balance applied towards the Term Loan Partial Prepayment (“Scenario 3”)

Compared with FY11 DPU = 5.75ct,

1. Proforma DPU = 6.19ct <+7.7%>
2. Proforma DPU = 6.64ct <+15.5%>
3. Proforma DPU = 6.75ct <+17.4%>

Looks like the Sales Proceeds from KeyPoint (if finalised), MAY be better deployed for Scenario (2) or (3) vs New Acquisitions. Scenario (1) is unlikely as FCOT had just recently refinanced the $500M Term Loan <Pg 26>.

Let's see whether they'll surprise us with a Scenario (4) ie. acquire new assets from their sponsor...

From SGX Annc dated 12 Jul 12, Resolutions passed,

RESOLUTION 1: ORDINARY RESOLUTION - THE PROPOSED SALE OF KEYPOINT
RESOLUTION 2: EXTRAORDINARY RESOLUTION - THE PROPOSED AMENDMENT TO THE TRUST DEED DATED 12 SEPTEMBER 2005 (AS AMENDED OR RESTATED) CONSTITUTING FCOT
RESOLUTION 3: ORDINARY RESOLUTION - THE PROPOSED UNIT BUY-BACK MANDATE

Sale of KeyPoint is still pending (Pg6 of Presentations),

Condition Precedent

–Unitholders should note that the sale of KeyPoint is still subject to the condition precedent in relation to the issue of a letter by the Head Lessor (or the Singapore Land Authority (“SLA”) or the Commissioner of Lands on behalf of the Head Lessor) that it has in-principle no objection to: (a) an extension of the Head Lessor’s in-principle approval to extend the term of the state lease to a fresh 99 year lease as set out in a previous letter from the SLA to FCOT; or (b) extend the term of the state lease to a fresh 99 year lease, on such terms and conditions as may be specified by the Head Lessor (or by the SLA or Commissioner of Lands on behalf of the Head Lessor), as disclosed on Page 9 of the Circular

–An application has been made and the Manager is waiting a letter by the Head Lessor (or the SLA or the Commissioner of Lands on behalf of the Head Lessor) in relation to this condition precedent

–The Manager will make an announcement once this condition precedent is satisfied

From the same presentations, Pg14 gives the impact to Gearing for the 3 scenarios (on use of sales proceeds from KeyPoint),

Scenario 1 : Gearing = 26.3%
Scenario 2 : Gearing = 35.2%
Scenario 3 : Gearing = 36.4%

Comments : With the recent rise in share price (~10%?) in recent weeks, the Proforma DPU = 6.75% for Scenario 3 may no longer be valid as the nos. of shares (22,431,998 Units) to be bought back (in that scenario) ought to be now lower.