FCOT – DBSV

Growth potential at great price!

At a Glance

• Healthy portfolio performance with occupancy reaching a high of 98%

• Re-rating catalysts from imminent refinancing and potential divestment of Keypoint

• Excellent value; stock at 0.6x P/BV and >7.5% yield. Maintain BUY and TP raised slightly to S$1.08

Comment on Results

Slightly below our expectation, in line with market. On a y-o-y basis, 4Q11 revenue and NPI rose 4-5% to S$30.4m and S$24.3m respectively. Net CPPU dividends, distribution income rose by a marginal 1% to S$9.6m, translating to 1.52 Scts DPU. Net revaluation gain of S$35.6m largely from better performance of its SG and Australia portfolio lifted portfolio value to S$1.9bn or book NAV of S$1.34/unit. Full year DPU of 5.75 Scts makes up 94% of our FY11 estimates largely due to lower non tax deductible items adjustment like amortization cost.

Portfolio performance remained fairly consistent. SMEs or new-to-market companies remain on a lookout for spaces <2,000 sf, which bode well for FCOT SG properties. Portfolio occupancy remained strong at 98% and the group continued to experience positive rental reversion for most of its properties. With about 24.3% of leases (on a see through basis for CSC) in terms of revenue expiring in FY12, there will be organic growth given that expiry rents are below current market level.

Expect a stronger balance sheet. Gearing is now at a healthy 36.6%. Given its lumpy debt profile, FCOT is likely to term out its debt profile by refinancing its S$132m AUD loan first, followed by its S$500m SG loan. We expect the trust to reap interest savings of 50-100 bps.

Recommendation

Maintain BUY.
The possible divestment of Keypoint will unlock FCOT’s latent value, in our view, empowering the REIT to deploy the capital for better yielding opportunities. FCOT trades at an attractive 0.6x P/BV, offers FY12-13F yields of 7.7% – 8.1%. Maintain BUY with a slightly higher DCF-based TP of S$1.08 as we rolled our numbers forward into FY12.