Brokers’ take

Compiled by Lynette Tan

FRASERS COMMERCIAL TRUST

| NEUTRAL

APRIL 24 CLOSE: $1.49

TARGET PRICE: $1.50

RHB Research Institute, April 24

We remain neutral pending more visibility on Alexandra Technopark leases, where occupancy has been sub-optimal, and redeployment of divestment proceeds.

Distribution per unit (DPU) is expected to maintain stable.

We expect higher capital distributions to offset the loss of income from divestments and lower portfolio occupancies for the next few quarters.

Management said that it still has about $159 million of divestment gains from the disposal of hotel development rights and sale of 55 Market Street.

Frasers Commercial Trust's gearing of 29.1 per cent is among the lowest in Singapore real estate investment trusts (Reits), presenting a good debt headroom of about $350 million (assuming 40 per cent levels) for acquisitions.

We believe it may potentially look at acquiring the remaining 50 per cent stake in the Farnborough Business Park and look at other sponsor assets in UK once the Brexit uncertainty is cleared, due to its attractive yields and long weighted average lease expiry.

KEPPEL REIT

| BUY

APRIL 24 CLOSE: $1.23

TARGET PRICE: $1.40

DBS Group Research, April 24

We maintain our "buy" call with a raised target price. The Reit's share price typically leads a recovery in spot office rents by six to 12 months.

According to CBRE, Grade A CBD rents rose by another 3 per cent on quarter to $11.15 per sq ft/month by end-Q1 2019, and is 25 per cent higher from the low of $8.95 per sq ft/month in H1 2017.

Thus, we believe office rents are on a sustained upturn, and the share price rally which started late last year should continue.

With last year likely to mark a cyclical low in Keppel Reit's DPU, we are more forward looking and focus on growth in DPU from this year onwards as the Reit benefits from the upturn in Singapore office rents and boost from its maiden acquisition in South Korea.

Given prior guidance by Keppel Reit that it was actively seeking acquisitions including in new markets outside its core markets of Singapore and Australia, the acquisition in South Korea is not a surprise. The market should react positively to the Reit deploying its strong balance sheet and the expected DPU accretion, as well as being able to dispose its 20 per cent stake at an exit yield in the low 3 per cent and redeploying part of the proceeds at 4.7 per cent.

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