Frasers Commercial Trust - OCBC Investment 2018-10-22: Alexandra Technopark Troubles – Shake It Off, Shake It Off


Frasers Commercial Trust - Alexandra Technopark Troubles – Shake It Off, Shake It Off

  • In-line set of results.
  • Confluence of positive factors.
  • Fair Value of S$1.56.

No surprises in 4QFY18

  • Frasers Commercial Trust’s (FCOT) 4QFY18 results were within our expectations. Gross revenue dropped 15% y-o-y to S$32.5m, which formed 23.6% of our full-year forecast.
  • Occupancy rates were lower across FCOT’s Singapore and Central Park assets. However, distributable income to unitholders rose by 10% y-o-y on the back of contribution from Farnborough Business Park (equity-accounted), higher distribution from capital returns and 100% of management fees taken in units.
  • Frasers Commercial Trust’s DPU for FY18 came in at 9.60 S-cents, forming 100% of our full-year forecast.

Alexandra Technopark – A story of two halves

  • In our view, FY19 should help put the Frasers Commercial Trust’s HP woes in the rear mirror. Based on our calculations, the final tranche of HP’s planned expiries should see ~8.9% of Alexandra Technopark’s NLA being vacated by end-Dec18. Thus, it is likely that this would weigh on Alexandra Technopark’s income contribution in 1HFY19.
  • However, with Alexandra Technopark’s AEI nearing completion, management has noted that leasing has gained momentum, and space can now be better marketed. Thus, we are optimistic that the manager should be able to backfill the current and planned vacancies well in 2HFY19.
  • At a normalised stage, Alexandra Technopark should see a wide variety of tenants across trade sectors, thereby mitigating concentration risk.

Tailwinds Evident

  • Frasers Commercial Trust (FCOT) sits at a point in the cycle where Singapore commercial rents are projected to strengthen further.
  • According to CBRE, demand for Grade B office space has increased as available Grade A space has tightened considerably. Also, the strong office market recovery has seen a widened gap between business park and office rents, thus resulting in higher rent expectations for business parks.
  • Separately, after paring down S$197m of debt with divestment proceeds from 55 Market Street, Frasers Commercial Trust’s gearing has reduced significantly from 35.4% to 28.3% as at 30 Sep 2018. As we have highlighted previously, we believe that the ample debt headroom would allow Frasers Commercial Trust to continue growing its portfolio accretively.
  • We roll forward our valuations, taking also into account the drop in revenue and reduced financing costs arising from the 55 Market Street transaction.
  • Our fair value increases from S$1.53 to S$1.56.

Joseph Ng OCBC Investment Research | 2018-10-22
SGX Stock Analyst Report BUY MAINTAIN BUY 1.56 UP 1.530