Fraser Commercial Trust's Potential Growth With Merger Proposal

Updated: Jan 21



Key Highlights:

  • Fraser Commercial Trust's (SGX:ND8U) 4Q19 DPU was flat at 2.4 cents

  • The annualised yield and price to book ratio are 5.7% and 1.02 respectively



1. Dividends


Net property income grew 26.5% to $26.7m. The increase was mainly due to

  • Higher rental income from China Square Central, Alexandra Technopark, Central Park, 357 Collins Street

  • Lower utility expenses for Alexander Technopark


However, the increase in net property income was partially offset by the effects of the weaker average Australia Dollar.


The annualised yield is 5.7%. It is currently trading near its historically low yield of 5.5%.

REITs Rating's Yield Trend


2. Portfolio


Portfolio occupancy remains at 80%. However, the committed occupancy is at 97%. Besides, 51.8% of the leases have a built-in rental step-up of 2.8%.

Frasers Commercial Trust's gearing is one of the lowest at 29%. The interest cost is 2.9%, Any increase in interest rate would have minimal impact as 86% of the loans are on fixed rates. It is currently trading at a price to book ratio of 1.02.

3. Growth catalyst


Asset enhancement initiatives have been yielding positive results. The enhancement of Alexandra Technopark into business campus has completed. The property enjoys 10 to 15% higher rental as compared to end-2018. Besides, the upgraded China Square Central has an additional 25% space of 80,000 square feet. More than 80% of the additional space has been committed.


Recently, there is also a merger proposal with Frasers Logistics & Industrial Trust, which will expand its market size with a more diversified portfolio worth $5.7b. The portfolio will consist of 98 logistics, industrial, office, business parks and commercial assets across Asia Pacific, Europe and the UK.

Summary


The DPU has been remained flat for a few years. The merger proposal if comes true will give the combined REIT a higher chance to be included in equity indices, which will potentially enlarge its investor base and improve its liquidity.


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