Google tenancy to make up for Microsoft's 2020 departure from Alexandra Technopark

The lease could see Frasers Commercial Trust’s FY 2020 NPI and DPU up 1.5%.

Frasers Commercial Trust (FCT) may witness a more pronounced net property income (NPI) and distribution per unit (DPU) contribution in FY 2020 following its success in securing tech giant Google as its latest tenant in Alexandra Technopark, a report by OCBC Investment Research (OIR) revealed.

In an earlier research report, OIR forecasted that FCT’s unchanged committed occupancy 60% in Q2 FY 2019, despite an improved product offering post-asset enhancement initiative (AEI) works, which was lower than peers’ asking rents and tight occupancies in the area was likely the result of advanced negotiations with Google.

According to OIR’s analysts, the lease announcement will help the firm address concerns about the sustainability of capital contributions required to bolster DPU post-FY 2019.

“We maintain our DPU assumption of $0.096 for FY2019, but increase that of FY 2020 slightly by 1.5% to $0.0985 due to a less-than-full FY contribution, as well as a small cash NPI contribution following Google’s fit-out period,” they said.

The major overhand over FCT’s inability to fill the space left by HP in December 2018 is considered to have receded after the firm confirmed that Google was indeed moving into a 344,100 sqft space, representing approximately 33.3% of the current total net lettable area (NLA) of the property. The lease agreement will be for five years, starting in Q1 2020.

Also read: Frasers Commercial Trust inks lease agreement with Google

Including the lease, the committed occupancy at Alexandra Technopark is said to stand at 93.7%.

“Whilst the average gross rent was not announced, channel checks suggest that rates could lie modestly north of $4 psf, which would indeed be in-line with recent signing rents, despite the significant amount of space leased,” OIR’s analysts noted.

CGS-CIMB analysts Lock Mun Yee and Eing Kar Mei also revealed that FCT continues to be in talks with other prospective tenants for the remaining vacant space, with improved rental pricing power.

OIR further noted that Google’s entry into Alexandra Technopark will also place FCT in a favourable position in rent negotiations, as it backfills an approximate 77,800 sqft of space that Microsoft will be pre-terminating in January 2020.

“With the longstanding issue now in the rear mirror, we believe FCT will now be able to focus on acquisitions abroad,” OIR said, and noted how in the near-term, the firm’s newly opened hotel development Capri by Fraser in China Square will further boost FCT’s earnings.

A separate research report by DBS Equity Research added that with additional income from Google, there is a high likelihood FCT will have a “clean yield”, without capital distributions, from FY 2021 onwards which should help close the firm’s yield differential with its large-cap peers.