FCOT – CIMB
Steady quarter; catalysts intact
With stronger occupancy, we believe FCOT can tide through tough times better than before. Refinancing catalysts are intact. We also expect buffers against office headwinds from master and long leases.
4Q11/FY11 DPU is in line with our estimates though slightly below consensus, at 26%/100% of our FY11 estimate. We lower our DPU estimates and DDM-based target price (discount rate 9.4%) on interest-cost adjustments. Maintain Outperform on refinancing catalysts.
Boost from occupancy
We believe FCOT is better-positioned to handle tough times this time round, given stronger asset occupancy and support from master/long leases. Management notes slower leasing but expects support from healthy occupancy and low rents. FY11 NPI grew 3% yoy on stronger contributions from almost all its self-managed assets. 4Q occupancy surged to 98% from 91% last year on proactive leasing with KeyPoint chalking up its 10th straight quarter of occupancy improvements, to 88%.
Upside from China Square
We believe direct management of its largest asset, China Square Central, could provide upside. Management guides that net operating income for underlying leases here exceeds that for its master lease. Underlying occupancy is healthy at 95.7% while recent signing rents are S$6.30-8psf vs. expiring rents of S$6psf.
Refinancing catalysts
A 50bp margin reduction (all debt due in FY12) is expected to lift DPU by more than 10%. Management will focus on its A$ debt first. Given rising uncertainties, it could be more proactive in refinancing its S$ debt though we believe the timing could be affected by its decision for KeyPoint. There are no penalties for early refinancing.
Keeping mum on KeyPoint
Management has not confirmed recent news reports on the closure of expression of interest for this asset. It maintains that its move is largely exploratory.
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.
FCOT – BT
FCOT’s Q4 DPU dips 1.9%
Quarter’s DPU of 1.52 cts compares with adjusted 1.55 cts a year ago; full year DPU up 2.7%
FRASERS Commercial Trust (FCOT) yesterday posted a distribution per unit (DPU) of 1.52 cents for the fourth quarter ended Sept 30.
This is 1.9 per cent lower compared with the previous year when the DPU, after adjusting for a unit consolidation exercise, was 1.55 cents.
For the full year, FCOT’s DPU was 5.75 cents – 2.7 per cent more than last year’s adjusted DPU of 5.6 cents.
Distribution per Series A convertible perpetual preferred unit (CPPU) for both Q4 and the full year remained unchanged year on year, at 1.39 cents and 5.5 cents respectively.
In Q4, FCOT’s total distributable income increased by one per cent to $14.4 million, following a 4.8 per cent rise in net property income to $24.3 million.
Gross revenue climbed 3.8 per cent to $30.4 million on higher contributions from Central Park, Caroline Chisholm Centre and KeyPoint. At KeyPoint, the occupancy rate grew to 88.4 per cent from 81.1 per cent a year ago.
Gross revenue would have been higher if not for lower contributions from the sale of Cosmo Plaza in January, and from lower rental rates at 55 Market Street.
For the full year, FCOT’s total distributable income rose 3.5 per cent to $55.2 million, and its net property income was 3.2 per cent higher at $96 million. Gross revenue increased 1.4 per cent to $119.6 million.
‘The trust has achieved growth in its distributable income to unitholders despite the negative rental reversion in some of its leases,’ said Low Chee Wah, CEO of FCOT’s manager.
Over the financial year, the average occupancy rate for FCOT’s portfolio shot up to 98 per cent from 90.8 per cent a year ago.
Its gearing at Sept 30 stood at 36.6 per cent, down from 39.6 per cent last year.
‘The manager will embark on an exercise to carry out an early re-financing of the trust’s existing debts which are due towards the end of next year to take advantage of the prevailing low interest rate environment,’ said Mr Low.
‘In addition, the manager will continue to review and re-shape the portfolio and to improve the quality of the assets so as to drive better portfolio and financial performance for our unitholders.’
FCOT gained half a cent on the stock market yesterday to close at 79 cents.
MLT – DBSV
A blue chip yield of 8.0%
At a Glance
• 3Q11 DPU of 1.69 Scts in line (73% of FY11 estimates)
• Financial metrics remain strong, gearing of 41% is comfortable
• Maintain BUY and S$1.07 TP based on DCF
Comment on Results
3Q11 results in line. Revenues and net property income grew by 25% and 24.% to S$68.3m and S$58.9m respectively, benefiting from an enlarged portfolio. MLT had acquired 14 properties in 2010 and an additional 4 assets since the start of 2011. Occupancy levels remain well supported at 99% as of 3Q11. Distributable income increased by a higher 30% to S$40.9m as a result of lower than proportionate increase in borrowing costs and hedging of its HKD income streams, which mitigated the impact of the HKD depreciation against the S$. DPU increased by lower 10% to 1.69 Scts due to an enlarged share base. DPU includes 0.03 Scts from divestment gains of 9 and 39 Tampines.
The group continues to see active leasing enquiries across all geographies and healthy occupancy levels. In 3Q11, MLT achieved organic growth of 6% yoy – rental renewals at up to 12%, while 3 properties (which were converted from single tenanted to multi-tenanted buildings) reportedly achieved higher renewal growth of between 30-50%. The trust also announced that they have obtained permission to redevelop 21/23 Benoi Sector to a maximum plot ratio of 2.5x (from the current 1.4x), potentially adding 70k sqm to the portfolio.
Financial metrics remain strong; debt expiry profile extended to 3.7 years. To date, MLT has renewed a substantial portion of its JPY loans expiring in 2011 (JPY 17.3bn or S$281m) at a competitive rate for another 6 years, lengthening its debt maturity profile to 3.7years. Gearing ratio stands at 41%. While this is higher than industrial peers, it remains comfortable in our view, given its strong sponsor backing and that its portfolio is unencumbered. We note that MLT has taken local currency loans as a natural hedge against currency fluctuations and these provide tax shelters for its overseas exposure.
Recommendation
BUY, S$1.07 TP maintained. Yields of close to 7.7-8.0% are attractive in our view; re-rating catalysts likely to hinge on the manager’s ability to continue sourcing accretive acquisitions that will grow distributions. TP is maintained at S$1.07 as we roll forward our valuations to FY12F.
FCT – OCBC
Strong uplift from Causeway Point
Record high DPU. Frasers Centrepoint Trust (FCT) announced 4QFY11 DPU of 2.35 S cents, representing an 8.8% YoY and 20.5% QoQ increase. This is the highest-ever quarterly DPU paid out, and surpassed both our and consensus forecasts. Coupled with 9MFY11 DPU of 5.97 S cents, full year DPU amounted to 8.32 S cents, or 5.8% ahead of our estimates (2.7% above consensus). This translates to a 5.7% DPU yield.
Strong performance from Causeway Point. The solid performance, we note, was achieved on the back of strong performance upswing from Causeway Point (CWP), following the re-opening of refurbished sections. This lifted FCT’s quarterly gross revenue and NPI to S$34.1m (+5.1% YoY) and S$25.3m (+13.7% YoY) respectively. Management shared with us that 65.5% of the refurbished works at CWP had been completed, and the asset enhancement initiative (AEI) is on track to fully complete in Dec 2012. With next phase of work to shift to the higher levels, we expect the disruption to revenue to be more muted.
Healthy financial and operating statistics. FCT’s financial position as at 30 Sep remained at a healthy level of 31.3% (vs. 31.7% at end-3Q) in spite of a 15.3% QoQ increase in total debt, helped by portfolio revaluation gain of S$97.2mn. The average rental rate for renewal leases signed in 4Q was also 7.9% higher than the preceding leases. In addition, its portfolio occupancy improved from 87.6% in 3Q to 95.1%, boosted by sharp recovery in occupancy at CWP from 78.3% to 92.0% in the same period.
Positive outlook. Going forward, we believe FCT will continue to post significant growth in its rental income as the full contribution of CWP and newly-acquired Bedok Point has yet to be realized. According to management, CWP is expected to provide over 20% increase in NPI when the AEI is completed, while its occupancy rate is likely to stay above 90% throughout. Bedok Point, on the other hand, is likely to add S$7m to FY12 NPI.
Upgrade to BUY. We raise our FY12 forecasts by 3.3-8.3% to factor in the latest results and lower cost of debt. We also introduce our FY13 estimates and roll over our RNAV-based valuation to FY12. Consequently, our fair value is now raised from S$1.57 to S$1.68. We turn positive on FCT as its suburban malls are likely to remain relatively resilient even in times of market uncertainty. We also like its strong execution and steady pipeline of assets from its sponsor. Upgrade from Hold to BUY.