Frasers Commercial Trust - OCBC Investment 2019-01-21: Going Gaga Over Google!


Frasers Commercial Trust - Going Gaga Over Google!

  • Frasers Commercial Trust's 1QFY19 results within expectations.
  • Re-rating catalyst emerging?
  • Maintain Fair Value of S$1.56 for now.

In-line scorecard

  • FRASERS COMMERCIAL TRUST (SGX:ND8U)’s 1QFY19 scorecard was within our expectations.
  • Gross revenue fell 10.7% y-o-y to S$31.5m, due to lower occupancies in its Singapore portfolio, divestment of 55 Market Street, as well as the depreciation of the Australian dollar.
  • NPI for 1QFY19 dropped 15.0% y-o-y to S$21.1m due to the above reasons, as well as higher property tax at Alexandra Technopark (ATP) and higher amortisation of lease incentives for Central Park and 357 Collins Street.
  • Finance costs dropped by 21.1% y-o-y to S$4.7m due largely to the repayment of loan facilities in Sep’18 with the proceeds from the disposal of 55 Market Street.
  • Frasers Commercial Trust's DPU for 1QFY19 came in flat at 2.40 S-cents, representing 25.0% of our full-year forecast.

Some positive takeaways

  • In-line with the continued increase in Grade B office rents, China Square Central registered positive reversions with signing rents at high S$7 psf/month, while Alexandra Technopark still experienced some slight negative reversions.
  • Frasers Commercial Trust’s premium grade Central Park property saw a modest occupancy rate of 71.5% as at end-Dec’18, but management noted that enquiries have been picking up with continued flight-to-quality movements still seen in the market.
  • On acquisitions, we note that Frasers Commercial Trust still has ample dry powder to venture deeper into the UK, as seen from their gearing of 28.4% (as of end-Dec’18). While some could be concerned about the effects of Brexit, we believe that Frasers Commercial Trust would focus more on business parks with tenants across more defensive trade sectors.

Addressing the elephant in the room

  • All said, we believe that the market is largely focused on Google’s reported interest in leasing ~400k sqft at Alexandra Technopark. Accounting for this as well as the reduction of ~93k sqft of space vacated by HP Singapore, Alexandra Technopark’s committed occupancy rate of 68.6% (as of 31 Dec’18) would have risen to ~98%. It was also reported that market watchers expect Google to pay ~S$4 psf/month.
  • Alexandra Technopark’s signing rents in 1QFY19 were on the higher side of S$3 psf/month, so it would be a positive surprise should the reported rate be eventually applied on such a large space. We reiterate that the above is still speculative, but could be a re-rating catalyst should it come to pass.
  • We maintain our forecasts and fair value of S$1.56 and BUY rating for now.

Joseph Ng OCBC Investment Research | https://www.iocbc.com/ 2019-01-21
SGX Stock Analyst Report BUY MAINTAIN BUY 1.560 SAME 1.560