SINGAPORE (Oct 22): CGS-CIMB Securities and RHB Research are maintaining their respective “hold” and “neutral” calls on Frasers Commercial Trust (FCOT), both with a $1.50 price target each.

The former has tweaked its FY1920 DPU marginally and introduced FY21 estimates, while latter is expecting operational weakness to persist in FY19 before a recovery is due in FY20.

This comes after the trust’s manager last week declared a 4Q DPU of 2.40 cents, down 0.4% from a year ago and in line with both research houses’ estimates.

Noting on a pickup in leasing activity for FCOT’s Alexandra Technopark (ATP) following the completion of its latest asset enhancement initiative (AEI), CGS-CIMB analyst Lock Mun Yee says she is anticipating income from ATP to remain volatile over FY19, as its tenant Hewlett Packard has a remaining 93,000 sq ft of leases expiring in Dec this year.

Nonetheless, she is positive on the early completion of the new 304-room Capri by Fraser, which now has a pre-commitment rate of 40% for its retail podium after co-working space operator JustCo’s recent commitment to lease about 34,500 sf of retail podium space for.

“In tandem with the improving Singapore office leasing market, FCOT is starting to see positive rental reversions at this property,” says Lock.   

The analyst also sees room for inorganic growth opportunities from FCOT’s healthy balance sheet, which had a low gearing at 28.3% as at end-4Q18 after paring down its debt post the recently-completed sale of 55 Market Street.

On this, RHB Research analyst Vijay Natarajan cautions of pressures faced by FCOT’s operational DPU in the near-term as a result of the sale, on top of costs incurred from ongoing asset enhancement works. This impact is however likely to be mitigated by distributions from divestment gains, in his view.

Going forward, the analyst believes FCOT’s sponsor’s UK assets, particularly a remaining 50% stake in Farnborough Business Park (FBP), would be a likely near-term acquisition target for the trust to boost its DPU.

“Management noted that it continues to like the UK market for its attractive yields and long leases, but is currently waiting for some clarity on the Brexit negotiations,” says Natarajan.

With the rebranding of ATP nearing completion, Natarajan also warns of slightly negative rent reversions despite a healthy pick-up in leasing enquiries due to the management’s selective strategy in choosing tenants in order to maximise asset yields and optimise tenant mix.

“Committed occupancy for [ATP] stands at 70.2%, but is likely to dip in the coming quarters, with Hewlett Packard Singapore expected to vacate another 93,195 sqft of office space in early Jan 2019,” he adds.  

As at 11.16 am, units in FCOT are trading 1 cent lower at $1.42 or 0.92 times FY19F book value.