SINGAPORE (Apr 23): Frasers Commercial Trust on Friday announced that its 2Q18 DPU dropped 4.4% to 2.40 cents from 2.51 cents a year ago, due to lower revenue and income from properties.
Revenue during the quarter dropped 18% to $33 million from $40.2 million, due to occupancy rates for the properties in Singapore, Central Park, 357 Collins Street, the absence of one-off payment in relation to a termination of lease in Central Park and the effects of the average weaker AUD.
Hence, net property income (NPI) was 25.3% lower y-o-y at $22.4 million
See: Frasers Commercial Trust posts 4.4% lower 2Q DPU of 2.4 cents
Following the results announcement, RHB is maintaining its “neutral” call on Frasers Commercial Trust (FCOT) with a target price of $1.49, while CIMB is maintaining its “hold” recommendation with a target price of $1.50.
The trust reported a weak set of 2Q18 operational numbers, with lower overall occupancy rate across its Singapore and Australia assets. As at end-Mar, the portfolio average committed occupancy rate was 83.5%.
In a Monday report, RHB analyst Vijay Natarajan says, “The results are in line with our expectation, with 2Q18 and 1H18 DPU respectively accounting for 25% and 50% of our full-year forecasts.”
So far, the trust’s management has back-filled 100,000 sq ft of space vacated by Hewlett Packard Enterprise Singapore (HPE) and Hewlett-Packard Singapore (HPS) in Alexandra Technopark (ATP), with the new leases signed so far on par with the rental paid by HPE and HPS.
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As at 2Q18, the trust’s occupancy rate for ATP is at 70.4% and Natarajan expects the near-term rate to drop to about 60-65%, as HPS vacates another about 135,756 sq ft, which represents about 13% of net leasable area (NLA), in two phases in April and December.
Meanwhile, the trust’s $45 million asset enhancement initiative (AEI) to revamp ATP is on track to be completed by mid-2018.
The AEI is underway and includes new amenities such as end-of-trip facilities and a new central plaza. This should enhance the attractiveness and rental competitiveness.
The trust’s management noted that leasing inquiries have increased, but will remain selective in choosing tenants in order to maximise the yield and better reposition the asset.
In a Friday report, CIMB analyst Lock Mun Yee says, “Hence, we expect income volatility will still be felt from this property.”
On the other hand, the management is experiencing an increase in office leasing enquiries for China Square Central retail podium (CSCP), in line with the recent pick-up in office market activity in the central business district (CBD) area.
However, the closure of the retail podium since January has affected CSCP’s performance.
CSCP is also currently undergoing a $38 million AEI, which commenced in 1Q18 and is scheduled to be completed by 1Q19. In the meantime, CSCP will remain closed during the AEI.
The repositioning will increase the malls’ NLA by 17% to 75,000 sq ft.
“We expect shopper traffic to pick up post-AEI – aided by the completion of a neighbouring serviced residence project, ie Capri by Fraser,” says Natarajan.
In Dec 2017, the trust announced that it would be jointly acquiring Farnborough Business Park with controlling unitholder Frasers Centrepoint Limited (FCL). This acquisition was completed on Jan 29, with maiden contributions booked in the quarter.
The management’s outlook for its UK business park is positive and expects ongoing Brexit negotiations to have a minimal impact on the demand for space.
As at 11.39am, units in FCOT are trading 3 cents lower at $1.43 or 0.89 times FY18 book with a dividend yield of 6.5%.
