Does HP’s Alexandra Technopark departure spell doom for FCOT’s profits?

HP contributes about 17% of group rental income.

Hewlett Packard’s departure from Frasers Commercial Trust’s (FCOT) Alexandra Technopark may be a blessing in disguise, as analysts believe this offers FCOT a way to raise profits.

According to a report by DBS, analysis of HP Inc and HP Enterprise’s (which contributes roughly 17% of FCOT group rental income) property footprint in Singapore leads DBS to expect that HP Enterprise will bid farewell to Alexandra Technopark.

DBS asserts, though, that this offers FCOT an opportunity to roll out an asset enhancement initiative to boost rents and the value of the property in the medium term. Further, downside risk to end-FY18 DPU is also offset by FCOT’s capability to drum up proportion of management fees paid in units from around one third currently to 100%.

Moreover, steady near-term earnings are expected to be underpinned by inbuilt organic growth.

“While we expect a slight dip in DPU in FY18 due to the loss of HP Enterprise as a tenant, FCOT still offers attractive and steady yields over the next couple of years. The resilience in the face of slowing office market is underpinned by WALE of 3.1 years and c.50% of leases having annual rental escalations of above 3%,” DBS asserts.