Frasers Commercial Trust - RHB Invest 2018-10-22: Lacking Near-Term Catalyst


Frasers Commercial Trust - Lacking Near-Term Catalyst

  • Maintain NEUTRAL and SGD1.50 Target Price, 5% upside.
  • Flattish 4Q DPU was in line. With SG portfolio still in transition, we expect operational weakness to persist in FY19, and a recovery in FY20. The impact to DPU is likely to be mitigated by distributions from divestment gains.
  • Alexandra Technopark’s AEI is nearing completion, but leasing progress has been slightly slow in our view, as management aims to achieve optimal yields.
  • With a lowly-geared balance sheet, further expansion in the UK is likely in the near-term.

Alexandra Technopark rebranding nearing completion.

  • The SGD45m asset enhancement initiative (AEI) in Alexandra Technopark (ATP) is nearing completion. A new amenity hub has been added and was completed in Jun 2018.
  • Management noted that tenants’ responses post-revamp have been positive so far, and it is seeing a healthy pick-up in leasing enquiries. However, it has been selective in choosing tenants in order to maximise asset yields and optimise tenant mix. New rents for the leases signed are in the high SGD3psf and low SGD4psf range, but rent reversions are still slightly negative.
  • Committed occupancy for asset stands at 70.2%, but is likely to dip in the coming quarters, with Hewlett Packard Singapore expected to vacate another 93,195 sqft of office space in early Jan 2019.

China Square Central updates.

  • Upgradation works are on track for completion by mid-2019. The repositioning should result in 17% uplift in the retail podium NLA. Co-working operator, Just Co Ltd, has taken up 34,500 sqft of space (entire second level) on a long-term lease at committed rents bettering management’s initial expectations. With this, pre-commitment for retail podium is 40%.
  • Frasers Commercial Trust aims to achieve an improved tenant mix for the remaining area, focusing on food & beverage (F&B), wellness and services.

Central Park occupancy likely to improve.

  • Management noted that....

Further UK expansion likely, post recent divestment of 55MSCP.

  • With the sale completion of 55 Market Street Car Park (55MSCP), FCOT’s gearing has come down to 28.3% from 35.4% in the previous quarter. Recall, the asset was divested in September for SGD216.8m, at an attractive implied exit NPI yield of 1.6%. FCOT booked net gain of SGD76m.
  • While we welcome the move as the offer price was too good to resist, we also note that it will add pressure to operational DPU, which has been hit by asset enhancement works. We believe the sponsor’s UK assets – in particular the remaining 50% stake in Farnborough Business Park (FBP) – is a likely target for acquisition in the near term to boost DPU.
  • Management noted that it continues to like the UK market for its attractive yields and long leases, but is currently waiting for some clarity on the Brexit negotiations.

Vijay Natarajan RHB Securities Research | 2018-10-22
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 1.500 SAME 1.500