FCOT – High DPU growth to continue till FY15
■ Results inline: FY13 DPU rose 17% YoY to S$7.83cts despite a 11% fall in NPI (owing to divestment of Keypoint and Japanese properties and weak AUD) due to savings on interest costs and CPPU redemption. 4Q13 DPU was up 19% YoY to S$2.08cts. Portfolio occupancy was stable at 97.9% (98.1% in 3Q13), with Singapore at 98.4% (vs 97.4% in 3Q), as CSC occupancy improved to 93.5% (vs 91.7% in 3Q), and Australia at 97.1% (vs 99.5% in 3Q13), as Central Park occupancy dipped to 93.5% (vs 99% in 3Q). FCOT achieved 4-23% reversions in 4Q. Gearing declined to 37.7% (39.5% in 3Q) as FCOT booked S$100m of revaluation gains, primarily driven by Alexandra Technopark. Cost of debt was at 2.7% with 51% of borrowings hedged.
■ CPPU redemption and master lease expiry to keep DPU growing: With FCOT having redeemed almost all of the outstanding CPPU over FY13, this will continue to drive DPU growth in FY14, while CSC and 55Mkt St will also continue to register reversions (passing rents 10-15% below market) and support growth. DPU growth for FY14-15 will be led by Alexandra Technopark master lease expiry, as FCOT is set to get a large uplift, with rents reverting from S$1.8psf under the master lease to S$3.5psf underlying rents. We forecast DPU to grow by 8% CAGR over FY13-15E.
■ High growth with attractive yield: We continue to like FCOT due to its under-rented story and high DPU yield and CAGR. The stock is trading at 6.7% FY14E yield and offers an 8% DPU CAGR FY13-15E (vs no growth for other office REITs). Maintain BUY.
Publish date: 24/10/13