SINGAPORE (Sept 25): RHB is reiterating its “neutral” call on Frasers Commercial Trust (FCOT) with a target price of $1.40.
This comes on the back of the trust’s announcement that Hewlett Packard Enterprise (HPE) Singapore, one of the trust’s key tenants, would not be renewing its lease for the 178,843 sq ft space when it expires in Sept/Nov 2017. HPE currently occupies 191,846 sq ft in Alexandra Technopark (ATP).
In a Monday report, analyst Vijay Natarajan says, “The space to be vacated by HPE constitutes approximately 17.1% of the total NLA of ATP and 6.6% of FCOT’s total gross rental income for the month ended Jun 2017.”
Natarajan estimates that this will cause a 4% to 6% drop in the trust’s DPU. The trust has so far filled up about 24,000 sq ft or 13.4% of vacated space in ATP.
But with the bottoming of office supply and demand seeing a pickup, the analyst believes that the trust should be able to fil out the space in the next few months.
Meanwhile, the lease of a bigger 304,920 sq ft space at ATP by FCOT’s other tenant, Hewlett-Packard Singapore (HPS) will be expiring in November 2017. This constitutes 11.1% of the trust’s total gross rental income for the month ended June.
“We believe there is a good possibility that the bulk of the leases would unlikely be renewed with HPS moving a majority of its operations to its purpose-built facility at 1A Depot Close,” says Natarajan.
ATP is currently undergoing an asset enhancement initiative (AEI) worth $45 million, which includes a new entrance gateway, revamping the facades, upgrading of the common-space and additional covered walkways.
The revamped property would also have better amenities such as a new food court, food and beverage outlets, clinic, landscaped roof garden and other facilities to be located at the Central Plaza.
The AEI started in mid-2017 and is scheduled to be completed by mid-2018.
“We view the AEI as a step in right-direction and would help enhance the yields of the property, which is currently under a competitive environment,” says Natarajan.
As at 9.50am, units in FCOT are trading at $1.38 or 0.9 times 2017 forward price to book with a dividend yield of about 7%.
