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Frasers Commercial Trust: Google’s Home
Frasers Commercial Trust (FCOT) announced that Google will be taking ~344k sqft of space at Alexandra Technopark (ATP) for 5 years, resulting in a committed occupancy rate of 93.7% (as of 25 June). This is firmly in-line with our earlier expectations. Given that the lease commences from 1QCY20, we expect more pronounced NPI/DPU contribution to be seen after FY20. In our view, this announcement would help to address concerns about the sustainability of capital contributions required in bolstering DPU post-FY19. Also, this places FCOT in a favourable position in rent negotiations as it backfills the ~77.8k sqft of space that Microsoft will be pre-terminating at ATP on Jan 2020. With this longstanding issue now in the rear mirror, we believe FCOT will now be able to focus on acquisitions abroad, supported by a healthy gearing of 29.1% (as of 2QFY19). Incorporating adjustments following last evening’s announcement, our fair value estimate rises from S$1.58 to S$1.69.
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Venture Corp (VMS SP) Major Headwinds Ahead
Maintain NEUTRAL but TP lowered to SGD16.30 from SGD19, 1% downside – pegged to 13x FY19F P/E. Things are not going well for global manufacturing with the worsening of the US-China trade conflict. We expect headwinds in 2H ie product delays, and deterioration of margins due to a lower revenue base. As such, we lower our FY19F PATMI by 8.4% to reflect these potential headwinds.
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DBS VICKERS |
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Frasers Commercial Trust (FCOT SP) : BUY
Secures Google as tenant at ATP • Signs Google for a five-year lease at ATP starting CY2020 • Backfills space vacated by HP with committed occupancy jumping to 93.7% • Google news to help close FCOT’s c.2% yield differential to its large-cap peers back to its 1.2% average gap • Maintain BUY, TP of S$1.70
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