SINGAPORE (Jan 23): RHB is maintaining Frasers Commercial Trust (FCOT) at "neutral" given portfolio weakness was visible, given four out of FCOT’s six properties registered lower occupancies.
Still, its recent foray into the UK’s business park segment is positive and is likely to help diversify its income, says RHB.
In Dec 2017, FCOT announced the joint acquisition of a 50% stake in Farnborough Business Park (FBP) with sponsor Frasers Centrepoint. The total purchase consideration of GBP174.6 million ($314.8 million) was on par with valuation.
In a Tuesday report, analyst Vijay Natarajan says, "We view the move favourably, as the properties’ pro-forma NPI yield of 6.4% is considerably higher than its current ~5.5% portfolio yield. Additionally, the freehold asset has a good quality tenant mix, with a long weighted average lease expiry (WALE) of 8.3 years."
And as RHB expects management to opt for a 50:50 equity and debt funding structure, FCOT's gearing should remain at around 36%.
Meanwhile, the $45 million asset enhancements to revamp Alexandra Technopark (ATP) are slated for completion by mid-2018. However, downsizing by its two key tenants – Hewlett-Packard Enterprise Singapore (HPE) and Hewlett-Packard Singapore (HPS) -- will cut the building’s near-term occupancy to 60-70%.
Elsewhere, China Square Central’s (CSC) retail podium’s asset enhancement initiative (AEI) is on track for completion by 1Q19. The repositioning would increase the mall’s NLA by 17% to 75,000 sf. Shopper traffic is also expected to pick up post-AEI.
"We have revised our FY18-20 DPU higher by 3-5% after factoring in FCOT’s recent acquisitions," says Natarajan, who has a $1.55 target price for the REIT.
As at 1.06pm, units in FCOT are down 3 cents at $1.52 or 6.6% distribution yield for FY18.
