CFA Society Singapore
SINGAPORE (July 11): DBS Vickers Securities is positive on Frasers Commercial Trust’s (FCOT) recent disposal of its commercial property at 55 Market Street, highlighting the move as one that unlocks value and opportunities for capital recycling.
FCOT is expecting to book a net gain of about $76.5 million once the transaction is completed by end-Aug this year, and intends to use proceeds from the divestment to repay existing debt. While the purchaser of 55 Market Street was not named, DBS understands the buyer is a fund.
The research house is reiterating its “buy” call on FCOT at an unchanged target price of $1.65.
In a Wednesday report, analyst Mervin Song says he is “delighted” that the trust has been able to achieve a good price for 55 Market Street, and believes the transaction places the REIT in a “very strong position” to accelerate its growth plans.
While FCOT’s disposal price of the commercial property is in line with the good prices achieved over the past few weeks for office assets in Singapore – including CapitaLand Commercial Trust’s sale of Twenty Anson on a 2.7% exit yield – the analyst highlights 55 Market Street’s exit yield of 1.7% as possibly the lowest-ever for a Singapore office building.
Nonetheless, Song thinks the market should react positively to FCOT’s latest divestment as it brings the trust’s pro-forma NAV per unit to $1.70, significantly above the trust’s last traded price of $1.39.
In his view, the move demonstrates that FCOT “does not fall in love with its assets” and is willing to sell its properties at the right price. The analyst also believes the trust is equipped with leverage to the expected multi-year upturn in the Singapore office market.
“FCOT is now in a strong position to recycle the proceeds into the higher yielding UK business park space, which it expanded into with a maiden acquisition of a 50% interest in Farnborough Business Park in late 2017 on a low 6% NPI yield. This should help temper the loss of income from HP vacating its space at ATP, but more importantly accelerate FCOT’s DPU growth profile going forward,” says Song.
As at 11.14am, units in FCOT are trading 2 cents higher at $1.41 or 19.8 times FY19F P/E.