STI : 3,204.80
Price Target : 12-Month S$ 1.46 (Prev S$ 1.44)
More surprises ahead
• 4Q13 results in line; outlook remains positive
• DPU CAGR of 7-8% over FY14-15
• BUY, TP revised slightly to S$1.46
3Q13 DPU of 2.08 Scts in line. Frasers Commercial Trust (FCOT) reported a 19% and 17% y-o-y decline in gross revenue and NPI to S$28.8m and S$21.9m, respectively.
The weaker performance was due to the divestment of Keypoint building and its Japanese properties, and a weaker AUD-SGD exchange rate. This was partially offset by contribution from the additional 50% stake in Caroline Chisholm and stronger performance from China Square Central, which saw rental income spike up 25% upon expiry of its master lease. In addition, interest savings (all-in cost of 2.7%), savings from the repurchase of its CPPUs and gains from hedging its AUD exposure led to a 21% y-o-y uplift in distributions to S$13.7m, translating to a DPU of 2.08 Scts.
NAV increases to S$1.57/unit. FCOT raised its portfolio value by S$95.2m (+3.1%), resulting in NAV increasing to S$1.57/unit. The increase was largely income-driven with minimal changes to cap rates assumptions used by the valuers. Gearing fell to 37% as a result.
Operationally resilient, organic-driven growth in FY14.
Performance ex-divestments continue to strengthen - 4Q13 net property income would have increased 7.0%, supported by resilient portfolio occupancies of 97.9%. Its rental income is also supported by a long weighted average lease expiry of 4.6 years. In FY14, the trust will be renewing close to 8.5% of its topline, of which expiring rents are c.10-15% lower than market rents in Singapore and 30% in Australia.
Looking forward to Alexandra Technopark (ATP) master lease expiry. The expected expiry of the master-lease presents further earnings upside. We estimate the property to report a net property income increase of c.S$5m, given the positive spread between underlying passing rentals (S$3.50 psf pm) vs implied master lease rent levels (estimated gross rent of S$2.90 psf pm).
Attractive growth over the next 2 years; BUY, TP S1.46. Our estimates are revised slightly downwards to account for a weaker AUD-S$ rate but even then FCOT continues to offer an attractive DPU growth profile of c.7-8% over FY14-15F which is transparent and achievable. Forward yields of 6.6%-7.0% are attractive. BUY with revised TP of S$1.46 as we roll forward valuations.
Publish date: 24/10/13