Brokers' take
Frasers Commercial Trust > Hold OCBC Investment Research, Dec 15 Dec 15 close: S$1.42 Target price: S$1.42
FRASERS Commercial Trust (FCOT) announced that it has entered into a 50:50 JV with its sponsor, Frasers Centrepoint Limited, to acquire Farnborough Business Park (FBP), which comprises 14 commercial buildings in the UK. The purchase consideration of the asset comes in at £174.6 million, which is at a slight discount to the property valuation of £175.05 million.
FBP has a long weighted average lease expiry of 8.3 years with a high occupancy rate of 98.1 per cent. Based on pro forma NPI as at Sept 30, 2017, we estimate the S$ NPI yield of FBP to be ~6.4 per cent, which is higher than that of FCOT's existing portfolio yield of ~5.5 per cent.
The acquisition is expected to be accretive, with pro forma DPU expected to increase by 1.6 per cent from 9.82 S-cents as at Sept 30, 2017 to 9.97 S-cents, assuming financing based on a combination of debt and equity.
Suntec Reit > Buy (Upgrade) DBS Group Research, Dec 15 Dec 15 close: S$2.12 Target price: S$2.30
WE, like all sell-side analysts, were blindsided by Suntec's past performance and missed the 30 per cent share price rally in 2017. However, we believe the rally can be sustained from current levels, as we now have greater confidence in CEO Chan Kong Leong's ability to engineer a turnaround at Suntec mall, having done a deep dive into the property and identified easy wins to improve the mall's performance.
Over the years, there has been speculation of Suntec being privatised by Suntec's sponsor ARA Asset Management and its partners. While we are not privy to ARA's intentions, we believe with ARA now having the backing of Warburg Pincus/Avic Trust, ARA has the resources to privatise Suntec if the market undervalues Suntec.
Passing rents at Suntec Mall of S$10-11 psf/mth are at a significant discount to other suburban malls of up to S$17-18 psf/mth. We believe as Suntec remixes its tenant mix and picks the low-hanging fruits such as placing children's stores next to the playground rather than at opposite ends of the mall, the resultant higher foot traffic, tenant sales and improving rents should act as re-rating catalysts.
Compiled by Andrea Soh
