Compiled by Lynette Tan
FRASERS COMMERCIAL TRUST | NEUTRAL
JULY 23 CLOSE: $1.64
TARGET PRICE: $1.65
RHB Research Institute, July 23
Frasers Commercial Trust's (FCOT) Q3/9M FY19 results are in line with estimates.
The key positive for Q3 was the healthy 12.6 percentage point increase in the portfolio committed occupancy rate to 94.1 per cent, driven by Google Asia-Pacific signing its lease.
The upside is largely priced in, with share price having risen 20 per cent year to date.
Rent reversions were slightly positive, with recent signing rental rates at $4 to $4.60 per square foot per month (psfpm) - higher than the average passing rental rate of $3.97 psfpm as at end of last year.
However, note that Microsoft Operations has exercised its right to shorten the lease tenure in respect of 77,761 sq ft of space by two years to end in January next year. Management is currently in advanced negotiations for this space.
With net gearing of 29.3 per cent, FCOT has a good debt headroom of about $350 million (assuming 40 per cent being the ceiling) for acquisitions.
We believe FCOT may consider acquiring the remaining 50 per cent stake in Farnborough Business Park and other sponsor assets in the UK - once Brexit- related uncertainties are removed - due to their attractive yields and long weighted average lease expiry.
Other markets include key cities in Australia. A Singapore asset acquisition looks unlikely since current yields are too low for a yield-accretive acquisition.
SINGAPORE REITS | NEUTRAL
Soochow CSSD Capital Markets, July 22
The Fed has shifted towards a dovish stance, signalling potential rate cuts in 2H 2019. While it serves as a potential prelude to a positive macro outlook, Singapore Reits' (S-Reits) current one-year forward yield of 5.74 per cent is approaching -1 standard deviation and 1.17 times price-to-book has surpassed historical +1 standard deviation and close to the last 2013 peak.
Even if rate cuts do realise, it will have a moderated impact vis-a-vis premium paid.
We expect a distribution per unit-driven boost in yield and book value from lower interest costs as well as a lower barrier for yield-accretive acquisitions.
In addition, MAS is deliberating the relaxation of the current 45 per cent gearing limit (to 50 per cent) - stocks with good pipeline assets and ample debt headroom can continue to grow. We estimate additional $14 billion of assets that S-Reits can buy (from current 34 per cent gearing to 45 per cent).
Sector-wise, we prefer office, hotel, industrial, and retail in the above order.
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