In a Monday report, analyst Vijay Natarajan says, “The space to be vacated by HPE constitutes approximately 17.1% of the total NLA of ATP and 6.6% of FCOT’s total gross rental income for the month ended Jun 2017.”
Natarajan estimates that this will cause a 4% to 6% drop in the trust’s DPU. The trust has so far filled up about 24,000 sq ft or 13.4% of vacated space in ATP.
But with the bottoming of office supply and demand seeing a pickup, the analyst believes that the trust should be able to fil out the space in the next few months.
Meanwhile, the lease of a bigger 304,920 sq ft space at ATP by FCOT’s other tenant, Hewlett-Packard Singapore (HPS) will be expiring in November 2017. This constitutes 11.1% of the trust’s total gross rental income for the month ended June.
“We believe there is a good possibility that the bulk of the leases would unlikely be renewed with HPS moving a majority of its operations to its purpose-built facility at 1A Depot Close,” says Natarajan.
ATP is currently undergoing an asset enhancement initiative (AEI) worth $45 million, which includes a new entrance gateway, revamping the facades, upgrading of the common-space and additional covered walkways.
The revamped property would also have better amenities such as a new food court, food and beverage outlets, clinic, landscaped roof garden and other facilities to be located at the Central Plaza.
The AEI started in mid-2017 and is scheduled to be completed by mid-2018.
“We view the AEI as a step in right-direction and would help enhance the yields of the property, which is currently under a competitive environment,” says Natarajan.
As at 9.50am, units in FCOT are trading at $1.38 or 0.9 times 2017 forward price to book with a dividend yield of about 7%.
