Fraser Commercial Trust

Fraser Commercial Trust (FCOT): DMG sees multiple drivers for DPU growth for the REIT over the next 12 months, that could lift DPU as much as 30% from the current 8.3¢ (6.1% DPU yield) to as high as 11.0¢ (8% DPU yield) over a 18-month period. On a 7% required yield, the stock could hit $1.54, translating to capital gains of 14%. This, coupled with dividend yield of 7+%, offers investors a total return of 21%. 1) Expiry of the master lease at Alexandra Technopark, which has current net rent of $1.80 psf pm, compared to current rents in the vicinity of $3.60 psf pm. 2) FCOT could also re-constitute its portfolio by selling its low-yielding 55 Market Street (NPI yield of 2.7%) and acquiring Alexandra Point, with NPI yield of 4-5%, from its parent, estimated to raise its NPI by $7m, or 8%. 3) FCOT has rights to build a hotel at its China Square Central property. Not being in the hotel business, house think it is likely to sell this right to either its parent or a third party. And based on a residential landcost of $500 psf, the rights could generate proceeds of $85m for the 170,000 sq gfa site. This could be used to fund the shortfall in cash required from swapping 55 Market Street for Alexandra Point.