• Upside to ATP occupancy
• Frasers Tower acquisition unlikely
• FV of S$1.58

In-line Set of Results

Frasers Commercial Trust’s (FCOT) 2QFY19 scorecard was within our expectations. Distributable income rose 5.2% YoY to S$21.7m, due to contribution from Farnborough Business Park (equity accounted), distribution from capital returns (~S$4.9m) and the effects of management fees taken in units. DPU for 2QFY19 came in flat YoY at 2.4 S-cents, representing 25.0% of our full-year forecast. The manager has noted that FCOT still has ~S$159m available for capital top-ups, including the gains from the disposal of 55 Market Street.

Taking a Constructive View on ATP

ATP’s committed occupancy remained unchanged at around 60% since 1QFY19. Given ATP’s improved product offering post-AEI, lower-thanpeers asking rents and the tight occupancies in the area, we believe it is highly unlikely that a quarter has gone by without meaningful offers from various parties for available space at ATP.

Thus, we deem it likely that the manager could still be in advanced negotiations with Google, which is reportedly interested in taking up ~400k sqft at ATP. Separately, we note that Microsoft has chosen to exercise its right to pre-terminate its lease two years early (~77.8k sqft) at ATP on Jan 2020.

Addressing Speculation; Other Positive News

There has been speculation as to whether FCOT will be acquiring Frasers Tower from its sponsor. We believe this is unlikely, as the manager has mentioned that its near-term acquisition plans should not involve Singapore, given the tight yields. At Central Park, a S$23m AEI (or S$11.5m for FCOT’s 50% share) will take place to improve the asset’s offering, and is expected to have minimal impact on tenanted spaces. We also note that Capri by Fraser is slated to commence operations in 2Q2019, which should positively impact CSC’s retail podium when it completes its AEI in 2H2019.

FV of S$1.58

In our view, the positives outlined above should help to compress the yield spread between FCOT and CCT; this spread currently stands at 1.85 ppts, which is 0.4 S.D. above the 7-year mean. Using a lower risk free rate of 2.3% (2.7% previously), we increase our FV slightly from S$1.56 to S$1.58. Maintain BUY.

Source: OCBC Research - 24 Apr 2019