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Frasers Commercial Trust Q3 DPU flat at 2.4 Singapore cents as income dips 3%

FRASERS Commercial Trust will pay out a distribution per unit (DPU) of 2.4 Singapore cents for the third quarter, flat on the year before, the manager said on Monday.

Net property income dipped by 3 per cent year on year to S$19.8 million for the three months to June 30, amid higher property tax costs for Alexandra Technopark.

The real estate investment trust’s (Reits) earnings also took a hit from the amortisation of lease incentives for the 50 per cent-owned Central Park in Perth and 357, Collins Street in Melbourne.

Gross revenue fell by 7 per cent to S$30.2 million, no thanks to lower occupancy at Alexandra Technopark in the quarter, a softer Australian dollar, and the sale of 55, Market Street in 2018.

Half of the trust’s net property income comes from Australia, where it has three assets: Central Park; 357, Collins Street; and Caroline Chisholm Centre in Canberra.

Still, distributable income ticked up by 2 per cent to S$21.8 million, supported by contributions from the Farnborough Business Park joint venture in Britain and from paying the management fee in units.

Gearing stood at 29.3 per cent, with a weighted average term to maturity of 2.4 years for the Reit’s S$632 million in borrowings.

Noting that the debt level falls below the regulatory threshold of 45 per cent, the manager said that the gearing “provides a high degree of financial flexibility to pursue growth initiatives and capitalise on market opportunities, as well as a buffer against unforeseen market risks”.

The weighted average lease expiry (WALE) of the trust’s six-property portfolio, by gross rental income, stood at 4.3 years, with occupancy of 77.5 per cent, as at June 30.

This includes the empty space at the 64,000 square foot retail podium at China Square Central, which has been closed for renovation.

The manager has said that the China Square development, in Cross Street, is set to benefit from footfall from a component 304-room hotel, owned by a unit of the trust’s sponsor, that opened in May 2019, as well as from the Urban Redevelopment Authority’s Business Improvement District scheme for the China Place precinct, which was announced in late 2018.

But, excluding the shuttered podium, portfolio WALE came in at 4.7 years, with committed occupancy of 94.1 per cent - up from 81.5 per cent in the quarter prior - on the back of tech giant Google’s fresh five-year lease for one-third of Alexandra Technopark’s NLA, from 2020.

“Active negotiations with prospective tenants” are also under way for most of the space now occupied by tenant Microsoft, said the manager. Microsoft - which contributes 3.1 per cent of gross rental income and is the trust’s sixth biggest tenant - has moved to shorten a lease at Alexandra Technopark by two years.

The shortened Microsoft lease will expire in January 2020. Still, citing a rise in signing rents at Alexandra Technopark after S$45 million of upgrades, the manager said that enhancements are key to “overall strategy to reshape and strengthen the investment portfolio for long-term growth”.

Other ongoing renovation works include the S$38 million project at China Square Central, which is expected to finish by end-2019.

A S$23 million enhancement of Perth’s Central Park also began in the quarter and is expected to last for one year, with plans for new amenities, flexible spaces, and a better connection with a next-door park.

As for Farnborough Business Park, the manager noted in its financial statements that, “while there are currently uncertainties with regard to the eventual outcome and impact of Brexit, the manager remains confident on the long-term prospects of the (British) market”.

It said that the business park’s performance is expected to stay stable on “solid fundamentals” such as a high-quality tenant base, occupancy rate of 97.4 per cent, and WALE of 7.1 years.

Unit holders can choose to take their distributions in units, cash, or a mix of both, under the management’s distribution reinvestment plan. The books close on July 30.

The counter closed down by S$0.01, or 0.61 per cent, at S$1.64, before the results.