FCOT – DBSV

Growth story intact

• DPU of 1.99 Scts in line (+14% y-o-y)
  
• Capital restructuring completing; expiry of Alexandra Technopark master lease in FY14 presents upside
  
• BUY, TP raised to S$1.69
  

Highlights

DPU growth of 14% to 1.99 Scts in line. Frasers Commercial Trust (FCOT) reported 2Q13 results in line with expectations. Gross revenues and net property income (NPI) dipped slightly by 4% and 7% y-o-y respectively due to the disposal of Keypoint and its Japanese assets, which is compensated to some extent by the acquisition of an additional 50% stake in Caroline Chisholm, coupled with higher rentals achieved across its portfolio in Singapore and Australia. Distributable income to unitholders increased by 17% y-o-y due to savings from the redemption of its CPPU units (funded by the proceeds from the sale of Keypoint), translating to DPU of 1.99 Scts.

Our View

Capital re-structuring completing; DPU CAGR of 19% over next 2 years. Further utilising the proceeds from its Keypoint sale, the manager continues to put it to good use and has redeemed a further 157m CPPU units ( 95.8% of total units) in April’13, resulting in a further savings of S$8.7m, which will provide a further uplift in DPU in the coming quarters. Gearing is expected to head up to 39% (from the current 31.7%).

Reversions positive, expiry of Alexandra Technopark master lease in Aug 14 presents further upside. FCOT continues to enjoy healthy portfolio occupancies of 93.1% and 99.5% for its Singapore and Australian properties, respectively. Rental reversions are positive, ranging from 8-19% for its Singapore properties (55 Market Street and Alexandra Technopark) while Central Park in Perth saw an almost 87% hike in rental rates. In addition, we estimate further upside potential of up to cS$5m, coming from the expiry of its Alexandra Technopark masterlease where the underlying passing gross rent of S$3.27psf is higher than the estimated gross rent of S$2.50 psf paid under the master lease.

Recommendation

Attractive growth over FY13-15F. Supported by its restructuring exercise coupled with underlying growth, we like FCOT’s growth story over FY13-15F, which is visible and achievable. Maintain BUY with a higher TP of S$1.69 as we raise our FY15F earnings from Alexandra Technopark master lease expiry.