FCOT – CIMB

In a sweet spot

4Q and full-year results were in line, boosted largely by higher Singapore contributions on positive rental reversions and one month of higher ATP income. However, Australia was adversely affected by a weaker A$. Looking ahead, we retain our Add call given its strong organic growth profile. FY15 DPU is projected to expand by 12% yoy, with a direct flow-through of higher underlying rents at ATP to the trust’s topline. We estimate that this could expand its portfolio revenue by 7-8%. In addition, positive rental reversions and inbuilt rental escalations and rent reviews from its other local and offshore assets could provide another boost to earnings. We slightly raise our DDM-based target price to S$1.56.

Higher Singapore, lower Australia due to forex impact

FCOT saw a 9% increase in 4Q NPI to S$23.8m, thanks to higher contributions from Alexandra Technopark (ATP) and China Square Central (CSC). This offset a moderate performance in Australia, which was impacted by a weaker A$. Distribution income rose by 9% yoy to S$15m (DPU: 2.2 Scts). FCOT benefited from c.1 month of underlying higher rental income at ATP with the expiry of the master lease on 25 Aug 14. In addition, there were positive rental reversions of 18.4% at CSC and 15.3% at 55 Market St. The group also enjoyed a 0.7% uplift in its portfolio value, boosting its book value to S$1.59/unit.

Full year ATP lift in FY15

In FY15, FCOT should continue to benefit from a full 12 months’ of higher income from ATP as the underlying gross rent is higher than the master lease income. We estimate that the higher income from ATP could lift its portfolio topline by c.7-8% in FY15. In addition, the rising rental trend in Singapore should enable it to enjoy positive rental reversion at CSC and 55 Market St. as

the average expiring rents are lower than spot levels. This provides the trust with strong income visibility. Its Australian assets should continue to improve steadily, with fixed rent reviews and inbuilt rental escalation clauses.

Maintain an Add rating

We maintain our Add rating and continue to like FCOT for its strong and certain growth prospects, underpinned by an organic expansion within its existing portfolio. The trust is currently offering an FY15 DPU yield of 7.1%. We tweak our FY15 forecast marginally by 0.2% and lift our DDM-based target price to S$1.56.