SINGAPORE (Jan 21): OCBC Investment Research and DBS Vickers Securities are maintaining their “buy” rating on Frasers Commercial Trust (FCOT) after the release of the REIT’s latest set of quarterly results where 1Q19 DPU came in flat at 2.4 cents, in line with both research houses’ expectations.
OCBC and DBS have given FCOT a fair value estimate and target price of $1.56 and $1.70, respectively.
To recap, Google is reportedly interested in leasing about 400,000 sf at Alexandra Technopark (ATP), which would bring the property to nearly full occupancy from a committed occupancy rate of 68.6% as at end-2018.
In a Monday report, OCBC analyst Joseph Ng notes that market watchers expect Google to pay about $4 per sq ft per month (psf/month), which is above ATP’s already-higher $3 psf/month signing rents in 1Q19.
“[The Google deal] would be a positive surprise should the reported rate be eventually applied on such a large space. We reiterate that the above is still speculative, but could be a re-rating catalyst should it come to pass,” says Ng.
The analyst also continues to remain positive on FCOT’s prospects as he believes it has “ample dry powder” to venture deeper into the UK with the possibility of further acquisitions, considering the trust’s low gearing.
“While some could be concerned about the effects of Brexit, we believe that FCOT would focus more on business parks with tenants across more defensive trade sectors,” he adds.
Similarly, DBS analyst Mervin Song remains bullish on FCOT’s medium-term prospects following the completion of ATP’s $45 million asset enhancement initiative (AEI) – which frees the trust of reliance on capital distributions, in his view.
See: Revitalised Alexandra Technopark expected to attract tenants, enhance competitiveness
In particular, Song believes the REIT’s recent expansion to the UK has brought it back on a positive growth path.
Meanwhile, RHB Research maintains its “neutral” call on FCOT with an unchanged target price of $1.50, pending further updates on Google’s leasing status at ATP.
“While a potential signing of Google lease would be positive news for FCOT, one concern is that such a big lease will again increase the tenant concentration risk for the building, which management was trying to lower based on our understanding,” comments RHB analyst Vijay Natarajan in a separate report on Monday.
Like OCBC’s Ng, Natarajan believes FCOT’s low gearing presents a good opportunity for more acquisitions in the UK – particularly for the remaining 50% stake in Farnborough Business Park (FBP) once uncertainty over Brexit subsides.
“China Square Central’s $38 million AEI works are expected to be completed by 2H19, which will see a 17% uplift to malls’ net lettable area (NLA)… The asset is also likely to benefit from the Governments’ Business Improvement District programme for the China Place precinct in which China Square Central is part of,” he adds.
As at 11.19am, units in FCOT are trading 2 cents higher at $1.47 or 0.91 times Sept-19F book value based on RHB’s estimates.
