OCBC upgraded Frasers Commercial Trust to Buy, saying its unit price is attractive, with Singapore’s Grade B central business district (CBD) offices set to recover.
“The Singapore Core CBD office recovery is, by now, a commonly-cited theme among most industry watchers. With limited new supply till 2020 at least, negotiating power appears to be shifting from tenants back to landlords,” OCBC said in a note on Thursday. “While Grade A CBD Core landlords would be the immediate beneficiaries, we believe that their Grade B CBD Core peers should also enjoy some upside, albeit belatedly.”
OCBC pointed to data from CBRE, which forecast Grade B CBD core monthly rates would rise around 7.4-8.8 percent in 2018-19.
The bank noted that at the start of the last rental recovery cycle in 2013, FCOT’s forward yield tightened to around 5.5 percent, while it is currently trading at 7.0 percent 2018 yield, not too far below its seven-year average. That compares with Grade A peers, such as CapitaLand Commercial Trust and Keppel REIT, which are already trading at yields well below their seven-year averages.
Yields move inversely to prices.
OCBC kept its fair value unchanged at S$1.51.
The unit is up 0.71 percent at S$1.42 at 1:17 P.M. SGT.