What Investors Should Know About Frasers Commercial Trust’s First Venture In Europe

Frasers Commercial Trust (SGX: ND8U) is a REIT that focuses primarily on commercial properties.

In mid-December 2017, Frasers Commercial Trust announced that it had entered into a 50:50 joint venture with Frasers Property Ltd (SGX: TQ5) (previously Frasers Centrepoint Ltd) to acquire Farnborough Business Park in the UK as part of its strategy to expand into Europe. Previously, the REIT had focused only on office buildings in Singapore and Australia.

In this article, I want to share some useful information I’ve learnt about the Farnborough Business Park deal, which was completed last week.

What’s behind the deal

During Frasers Commercial Trust’s earnings presentation for the first-quarter of its fiscal year ending 30 September 2018 (FY18), the REIT shared details about the UK business park. Here’s a quick overview of the property, including its size, net lettable area, WALE (weighted average lease expiry), occupancy rate, tenant retention rate, and more:

Source: Frasers Commercial Trust earnings presentation

We can see that Farnborough Business Park has some desirable qualities, such as a high occupancy rate of 98.1%, a long WALE of 8.3 years, and high-quality tenants (most of the tenants are multinational companies).

In Frasers Commercial Trust’s FY18 first quarter earnings update, Jack Lam, the CEO of the REIT’s Manager, shared some comments on why the REIT had done the deal:

“We look forward to the inclusion of FBP in FCT’s portfolio. [Farnborough Business Park] is a solid asset with strong fundamentals including a well-connected location, good building quality, a high occupancy rate, long-dated leases and well-established corporate tenants. It will add quality, defensiveness and diversity to [Frasers Commercial Trust].

We also look to extract further value from [Farnborough Business Park] by, for example, leveraging on portfolio synergies and market power afforded by the network of business parks, namely Winnersh Triangle, Chineham Park and Watchmoor Park, that [Frasers Property] owns in Thames Valley.”

In short, the REIT expects the acquisition to strengthen its portfolio, and the REIT also thinks that the business park has the potential to increase its value in the future due to its well-connected location.

Some closing thoughts

Frasers Commercial Trust’s latest acquisition of Farnborough Business Park is part of its strategy to diversify into the European office market. Investors will likely see more acquisitions in Europe going forward, since Frasers Commercial Trust has the right of first refusal (ROFR) on some of Frasers Property’s office and business park assets in the UK.

We believe we’ve identified a REIT dividend dynamo whose financials are strong enough to qualify its dividend as “safe” – and have profiled this stock in a research report that’s now available to download completely free of charge. Simply click here to claim your copy today!

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.