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Frasers Commercial Trust's Q2 DPU flat at 2.40 Singapore cents
FRASERS Commercial Trust (FCOT) is maintaining a distribution of 2.40 Singapore cents per unit for its second quarter amid lower occupancy and higher property tax at Alexandra Technopark.
Distribution to unitholders for the quarter ended March 31 rose 5.2 per cent to S$21.7 million. Gross revenue dipped 7.9 per cent to S$30.4 million from S$33.0 million a year ago. This was due to a lower occupancy rate for Alexandra Technopark, divestment of 55 Market Street in August 2018 and a weaker Australian dollar.
Net property income (NPI) was S$20.1 million, down 10.5 per cent from S$22.4 million a year ago. The fall was due to lower revenue, higher property tax for Alexandra Technopark and higher amortisation of lease incentives for its Central Park and 357 Collins Street properties.
The decrease was partially offset by a one-off income received from a tenant at FCOT’s 357 Collins Street property regarding a lease termination, as well as lower property maintenance expenses and utilities incurred for Singapore properties.
The real estate investment trust’s (Reit) manager, Frasers Commercial Asset Management, noted that its NPI exclude the results of UK property Farnborough Business Park, which is held as a 50-50 joint venture and equity-accounted. Including the attributable NPI of the business park, the portfolio NPI for the quarter would be S$22.7 million, the Reit manager said.
FCOT’s average committed occupancy rate stood at 81.5 per cent as at March 31 this year.
For its Singapore portfolio, committed occupancy rate stood at 67.5 per cent for the same period, affected mainly by the exits of Hewlett-Packard Enterprise Singapore and Hewlett-Packard Singapore from Alexandra Technopark.
The committed occupancy rate for its Australia portfolio was at 94 per cent for the same period, due to WeWork taking up 86,000 square foot (sq ft) of space at Central Park. This represented around 12 per cent of the total net lettable area (NLA) of the property.
Farnborough Business Park's occupancy rate stood at 98 per cent after adjusting for leases which tenants have exercised rights to break. (see amendment note)
For the first half of fiscal 2019, DPU was flat at 4.8 Singapore cents, while gross revenue dropped 9 per cent to S$61.9 million, from S$68.3 million a year ago.
NPI dropped 13 per cent to S$41.2 million on year from S$47.3 million, due to lower occupancy rates for FCOT’s China Square Central and Alexandra Technopark properties, and higher amortisation of leasing incentives for Central Park and 357 Collins Street.
NPI was also dented by higher property tax for Alexandra Technopark, effects from a weaker Australian dollar on the income from Australian properties compared with a year ago, and the disposal of its 55 Market Street property completed on Aug 31, 2018.
The decrease was also partially offset by one-off income received from certain tenants at 357 Collins Street regarding lease terminations, and lower property maintenance expenses and utilities incurred by the Singapore properties.
FCOT’s gearing, at 29.1 per cent for the same period, was below the regulatory limit of 45 per cent. It added that this provided a “high degree of financial flexibility” to pursue growth initiatives and capitalise on market opportunities, as well as a buffer against unforeseen market risks.
On the outlook for its Singapore properties, FCOT’s manager said tenant Microsoft will be pre-terminating its leases on Jan 26, 2020, two years before the original lease expiry date. The leases contributed 3.1 per cent of the portfolio gross rental income of FCOT, and cover 77,761 sq ft of space or 7.5 per cent of total NLA as at March 31.
Alexandra Technopark’s committed occupancy rate was at 59.2 per cent as at March 31.
FCOT’s manager said it is in talks, including advance discussions with various prospective tenants to lease space at the property. It added that there is no certainty any definitive agreements would be struck regarding these ongoing discussions, and announcements will be made when there are material developments.
Meanwhile in Australia, FCOT’s Central Park property will see its leases with WeWork come into effect in September and November 2019. There are also plans for the office lobby and forecourt areas of Central Park to undergo a S$23 million asset enhancement initiative, expected to start in the second quarter of 2019 and finish in the third quarter of 2020.
The Reit manager added that while there remains uncertainties on the eventual outcome of Brexit, it “remains confident” of the UK's long-term prospects.
It said that it expects the performance of Farnborough Business Park to remain stable, given its high-quality tenant base and healthy occupancy rate of 98 per cent. This is along with its weighted average lease expiry of 7.3 years, with 90 per cent of current leases by income expiring beyond fiscal 2022.
FCOT units closed at S$1.47, down one cent on Monday.
Amendment note: An earlier version of this article incorrectly stated that the Q2 2019 DPU included an advanced distribution of 0.8 cent per unit for the month of January 2018 paid on March 12, when this in fact applied to the company's Q2 2018 DPU. The line has been removed. It was also previously stated that the occupancy rate for Farnborough Business Park stood at 98.7 per cent when it fact it was 98 per cent. The article has been revised to reflect this.