Frasers Commercial Trust - RHB Invest 2016-10-21: Now a NEUTRAL As Outlook Dims

Frasers Commercial Trust - RHB Invest 2016-10-21: Now a NEUTRAL As Outlook Dims FRASERS COMMERCIAL TRUST ND8U.SI

Frasers Commercial Trust - Now a NEUTRAL As Outlook Dims

  • We see limited upside ahead with the uncertainties surrounding HP lease renewals amidst overall challenging office market conditions. 
  • FCOT’s share price has outperformed the STI by 11% YTD, and has reached our TP. Thus, we downgrade our rating to NEUTRAL with an unchanged TP of SGD1.40. 
  • A key re-rating catalyst would be the successful renewal of HP leases. 
  • FCOT currently offers a relatively high FY17F dividend yield of 7%, which should provide support to its share price.


No clarity on HP leases yet. 

  • Discussions on lease renewals with Hewlett Packard (HP) are still ongoing. HP is the key tenant in Alexandra Technopark and its leases expire in two phases – one set in Sep 2017 (5.5% of gross income) and the next (~12% of gross income) in Nov 2017. 
  • While estimated rentals currently paid by HP (at a high SGD3psf) are still below the average passing rental rate of SGD4.20psf, backfilling the entire office space in a short span of time would be challenging in the current market. 
  • Management alluded that it could undertake potential asset enhancement initiatives (AEIs) to better reposition the building.


Positive rental reversions but challenges remain. 

  • With the commodities sector rebounding, management is seeing a pick-up in Australian property (Perth) leasing enquiries. 
  • In Singapore, we expect the leasing market to remain challenging amidst weak demand and huge office supply. FCOT has about 21% and 27% of leases due for renewal (as a percentage of gross income) in 2017 and 2018 respectively.
  • Despite the challenges, Frasers Commercial Trust’s (FCOT) overall portfolio rent reversions remained positive, at +6.6% for FY16 (Sep). 
  • During 4QFY16, all its office properties had positive rental reversions (3.7-9.5%), except for Central Park (Perth) where the occupancy rate dipped to 80.2% and saw a negative rental reversion of -4.2%.


Downgrade to NEUTRAL, with an unchanged TP of SGD1.40. 

  • FCOT’s share price has done well, outperforming STI by 11% YTD, and has reached our TP. 
  • With no near-term catalysts in sight and taking into account the challenging outlook of the office sector, we downgrade the stock to NEUTRAL. 
  • A key re- rating catalyst would be the successful renewal of upcoming HP leases in Alexandra Technopark building and a pick-up in office leasing momentum. 
  • FCOT is currently trading at a FY17F yield of 7% and P/BV of 0.92x.




Vijay Natarajan RHB Invest | http://www.rhbinvest.com.sg/ 2016-10-21
RHB Invest SGX Stock Analyst Report NEUTRAL Downgrade BUY 1.40 Same 1.400



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