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Frasers Commercial Trust expected to maintain stable DPU despite slow progress in leasing talks

Stanislaus Jude Chan
Stanislaus Jude Chan • 2 min read
Frasers Commercial Trust expected to maintain stable DPU despite slow progress in leasing talks
SINGAPORE (Apr 24): Frasers Commercial Trust (FCOT) has seen its committed occupancy at Alexandra Technopark (ATP) bottom at 59.2% following the exit of its anchor tenants – with still no sign of any firm offers to take up a lease.
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SINGAPORE (Apr 24): Frasers Commercial Trust (FCOT) has seen its committed occupancy at Alexandra Technopark (ATP) bottom at 59.2% following the exit of its anchor tenants – with still no sign of any firm offers to take up a lease.

But analysts believe there is no real cause for worry at this point.

For now, RHB Research analyst Vijay Natarajan says FCOT’s distribution per unit (DPU) is “expected to maintain stable, aided by higher capital distribution and payment of management fees in units”.

However, Natarajan says RHB is keeping its “neutral” call on FCOT with an unchanged target price of $1.50, pending more visibility on ATP leases where occupancy has been sub-optimal and redeployment of divestment proceeds.

FCOT announced a 2Q19 DPU of 2.40 cents, unchanged from a year ago, as revenue and net property income fell 11% and 15%, respectively.

The decline was mainly due to lower occupancy at ATP, the divestment of 55 Market Street (55MS), and a weaker Australian dollar.


See: Frasers Commercial Trust posts flat 2Q DPU of 2.4 cents

“We expect higher capital distributions to offset the loss of income from divestments and lower portfolio occupancies for the next few quarters. Management guided that it still has about $159 million of divestment gains from the disposal of hotel development rights and the sale of 55MS,” Natarajan says.

Meanwhile, all eyes are on ATP – the largest income contributing asset in FCOT’s portfolio.

Google was reportedly in talks to lease about 400,000 sq ft at ATP at average rentals of $4 per sq ft. But up to now, nothing has come out of those negotiations.

“Take-up rate for the office space has been fairly slow in our view despite the reasonably healthy demand for Grade-B office space,” Natarajan says.

However, OCBC Investment Research analyst Joseph Ng believes it is “likely” that the manager could still be in advanced negotiations with Google.

“Given ATP’s improved product offering post-AEI, lower-than-peers asking rents and the tight occupancies in the area, we believe it is highly unlikely that a quarter has gone by without meaningful offers from various parties for available space at ATP,” says Ng.

OCBC is keeping its “buy” recommendation on FCOT with a marginally higher fair value estimate of $1.58, raised from $1.56 previously.

As at 2.24pm, units in FCOT are trading 0.7% down at $1.48.

According to OCBC valuations, this implies an estimated price-to-earnings (PE) ratio of 18.9 times and a DPU yield of 6.4% for FY19F.

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