Frasers Commercial Trust - DBS Research 2019-06-26: Secures Google As Tenant At Alexandra Technopark


Frasers Commercial Trust - Secures Google As Tenant At Alexandra Technopark

  • Signs Google for a five-year lease at Alexandra Technopark starting CY2020.
  • Backfills space vacated by HP with committed occupancy jumping to 93.7%.
  • Google news to help close Frasers Commercial Trust’s c.2% yield differential to its large-cap peers back to its 1.2% average gap.
  • Maintain BUY, Target Price of S$1.70.

Google to take up one-third of ATP

  • FRASERS COMMERCIAL TRUST (SGX:ND8U) announced that it has secured Google as a tenant at Alexandra Technopark (ATP).
  • Google will take up c.344,100 sqft which represents c.33.3% of Alexandra Technopark for a term of five years starting CY2020 or 2QFY20 (Frasers Commercial Trust has a September year-end)
  • Average gross rents is noted to be comparable to recent signing rents for the property which we understand has been around S$4 to low S$4’s psf/mth over the past few quarters. While Frasers Commercial Trust has not disclosed the exact terms of the leases, inferring from the use of the word “average”, there may be some step-ups in the lease.
  • Including the Google lease, committed occupancy for the property now stands at 93.7% versus 59.2% at end-March 2019.

Our Thoughts

  • The signing of Google at Alexandra Technopark has been highly Google to this end. Based on these press reports, Google was reported to be seeking Google remain at Mapletree behind Alexandra Technopark.
  • In our estimates, we had assumed occupancy for committed occupancy of 93.7%. It appears our original occupancy projections of 75-85% over FY19-20F are on the high Google. Nevertheless, through the use of management fee in distributions (c.S$159m yet to be distributed), we believe Frasers Commercial Trust is in Frasers Commercial Trust's dividend history.
  • We believe the market should Google Alexandra Technopark positively as Frasers Commercial Trust’s share price has been range bound, and a laggard HP (HP Enterprise and HP Singapore) would vacate Alexandra Technopark in 2017. HP used to occupy a total of 496,766 sqft or c.44% of Alexandra Technopark.
  • Furthermore, Frasers Commercial Trust’s yield has been elevated, around 2.0% higher than its large-cap peers versus the historical average of c.1.2%, owing to the fact Frasers Commercial Trust has been maintaining a relatively stable DPU despite the loss of income from Alexandra Technopark by distributing capital gains (from the sale of 55 Market Street and a hotel development site at China Square Central) and doubts over its ability to backfill the space vacated at Alexandra Technopark.
  • With additional income from Google, in our view there is a high likelihood Frasers Commercial Trust will have a “clean yield” (without capital distributions) from FY21 onwards which should help close Frasers Commercial Trust’s yield differential with its large-cap peers.
  • Thus, with a strong balance sheet (gearing around 29.1%), leverage to an upturn in Singapore office rents and attractive 6.1% yield, we maintain our BUY call and street-high Target Price of S$1.70.

Mervin SONG CFA DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2019-06-26
SGX Stock Analyst Report BUY MAINTAIN BUY 1.700 SAME 1.700