Broker's take: UK business parks seen growing Frasers Centrepoint's income base

FRASERS Centrepoint Limited (FCL) has agreed to buy four business parks in the United Kingdom from Oaktree Capital Management L.P. for about £686 million (S$1.20 billion), subject to post-completion adjustment.

Here is an analyst's comments:

DBS Group Research, Derek Tan:

"Quality portfolio which benefitted from strong connectivity and recent upgrades. We note that the business parks offer cost-efficient alternatives to city centre locations and are supported by transportation networks (M3 and M4) for the properties near London and for the Glasgow property, located within 10 minutes drive to the City Centre. The integrated life-style and community living offers workers in the business park an attractive "work-live-play" environment which is a key driver that anable the group to achieve a high historical rentention rate of about 80-85 per cent. In addition, the portoflio also recently underwent a asset enhancement programe (AEI) of about £6.5 million over the past 3 years.

"Growing recurring income base and expanding its income base. The tenant profile for the target porfolio is diversifed but introduces a new set of tenants to the FCL, given that its mostly in the Telecom, ICT, Manufacturing, Engineering subsectors. Key clusters that drive occupancy within the busienss parks are Business Services, Engineering and Technology which we believe to be segments that are continuing to see growth in employment opportunties and increasing prominence to UK's economy going forward. We note that the long dated WALE of 5.9 years offer strong income visibility and defensive cash flows to the group. Amonsg the top 10 tenants, average WALE is longer at between 4.4 years to as long as 18.1 years.

"Potential redevelopment upside to drive RNAVs...Based on the contracted rent of £46.5 million, the acquisition will offer a intial gross yield of 6.7 per cent.

"Estimated proforma impact to FY16 PATMI is estimated to be about 6 per cent after the (4) business park acquisition and 7 per cent after the acquisition of all 5 properties."