FCOT – CIMB
Poised for the turn
• In line; maintain Outperform. 3Q11 DPU of 1.38cts meets our forecast and Street expectation at 24% of our FY11 figure. 9M11 DPU forms 74% of our estimate. DPU was up 10% yoy on stronger NPI contributions from almost all its self-managed assets mainly on better occupancy. Occupancy at KeyPoint had improved for the ninth consecutive quarter. An improving underlying portfolio at China Square Central meanwhile should position FCOT for upside when it takes over direct management in Mar 12. No change to our DPU estimates or DDM-based target price of S$0.99 (discount rate: 9.4%). With an improving portfolio, stable capital structure and a strong sponsor in F&N, we see no reason for its 35% discount to book amid forward yields of 7%. We see catalysts from early refinancing, the unlocking of value from AEI at China Square Central and improvements in occupancy and rentals.
• 3Q11 net property income up 10% yoy and 4% qoq. NPI was up 10% yoy on stronger contributions from Central Park, Caroline Chisholm Centre and Keypoint. Qoq, NPI was up 4% as there were improvements at its Australian assets. Occupancy at KeyPoint also continued to improve for the ninth consecutive quarter to 86% since the in-house team took over property leasing in 2Q09. Passing rents were stable at about S$5 psf with limited exposure to higher rollover rents locked in at the 2008 peak.
• Improvements at China Square Central. China Square Central’s underlying occupancy improved 20bp, with recent leases renewed at S$6.30-8.00 psf vs. expiring rents of S$6.30 psf and passing rents of below S$6 psf. Continued improvements in occupancy and rentals on the back of more proactive management by FCOT and an upcoming Telok Ayer MRT station could position FCOT for upside when it takes over direct management following the expiry of the master lease in Mar 12.
• Potential upside from refinancing. Asset leverage had been pared down to about 37% after the divestments of AWPF and Cosmo Plaza. This entire amount (S$745m) will mature in 2012. With a high cost of debt of 4.3% and prolonged low interest rates, FCOT could save in terms of interest following the refinancing of this debt. We estimate that a 50bp interest-rate reduction could lift its DPU by 11%.
FCT – DBSV
Portfolio expansion move
• As expected, FCT is acquiring Bedok Point for S$127m
• Accretive deal, reviewing funding options
• Maintain Buy, $1.73 TP
Acquires Bedok Point. FCT announced that it is purchasing Bedok Point from sponsor, Frasers Centrepoint for S$127m or S$1,568psf of NLA. All-in-cost works out to S$129.2m or S$1,595psf. Bedok Point is a four-storey 80,985sf NLA suburban shopping mall located within the established high population density Bedok housing estate and is well served by public transport facilities such as the Bedok MRT station and bus interchange. It enjoys a high volume of captive shoppers and has seen approximately 5.2m footfalls in the first 6 months of opening. Current occupancy is at 97.4% and tenants comprise mainly F&B and entertainment shops.
Price within expectations, further room for upside. We view this deal as positive as it will expand FCT’s asset size by 8.4% to S$1.66b while keeping its pure suburban focus. The acquisition price is in line with recent FCT and CMT mall valuations of around S$1,600-2,200psf while NPI yield based on current occupancy and monthly gross rents of S$11psf/mth works out to be about 5.6% with room to improve to 5.7-5.8% when fully leased. In the medium term, we believe there are opportunities for growth in yields through (1) improving the existing property efficiency of 60% (2) upward adjustment in rental in the first rental renewal cycle given that current rents are slightly below the suburban rents of S$12-14psf/mth.
The manager is reviewing funding options including a combination of debt and equity sources. Current gearing is at 31.7% and full debt financing would lift the ratio to 36-37%. In our scenario analysis, we have assumed between 40-60% of the acquisition value to be equity funded. This would result in a 4-4.7% boost to FY12F DPU while DCF-backed target price would remain relatively unchanged. These have not been factored into our current forecast.
Maintain Buy. We retain our Buy call on FCT. The stock is trading at current pre-acquisition FY11-FY12 yields of 5.5-5.8%. This is an attractive 344-374bps over the 10-year bond yield. Current target price of S$1.73 offers total return of 18%.
FCOT – BT
FCOT posts DPU of 1.38 cents for Q3
FRASERS Commercial Trust (FCOT), whose five-into-one unit consolidation was completed in February this year, yesterday posted a distribution per unit (DPU) of 1.38 cents for the third quarter ended June 30.
This is 10 per cent higher than a year ago, when the DPU, after adjustment for the unit consolidation effect for comparison, was 1.25 cents.
Distribution per Series A convertible perpetual preferred unit (CPPU) was 1.37 cents, unchanged year on year.
FCOT’s Q3 results were driven largely by higher contributions from a local property, KeyPoint, and two Australian properties, Central Park and Caroline Chisholm Centre.
The strengthening of the Australian dollar against the Singapore dollar played a part in boosting contributions from the Australian properties. Together with rising occupancies and higher rental rates, net property income in Q3 rose 10 per cent over the year to $24.9 million.
Total distributable income rose 8 per cent to $13.4 million from a year ago. This comprised $8.7 million in distribution to unitholders – which increased 13 per cent – and $4.7 million in distribution to CPPU holders – which stayed flat.
For the nine months ended June 30, DPU was 4.23 cents, up 4 per cent year on year from 4.05 cents (which was adjusted for the consolidation effect). Distribution per CPPU was unchanged at 4.11 cents.
In January, FCOT sold Cosmo Plaza, an office building in Japan.
Later in May, it divested its investment in the Australian Wholesale Property Fund, using the net proceeds to repay part of an existing Australian dollar loan, creating interest savings.
‘The full effect of the partial repayment of the AUD loan would be seen in the coming quarters,’ said Low Chee Wah, CEO of FCOT’s manager. He added that the disposal of non-core assets has helped to strengthen FCOT’s balance sheet and distributable income. ‘The trust is benefiting from the fruits of the initiative which will place FCOT in a better position for future growth,’ he added.
FCOT closed unchanged on the stock market yesterday at 87 cents.
FCT – BT
FCT buying Bedok Point for $127m
FRASERS Centrepoint Trust (FCT) is buying Bedok Point for $127 million from its sponsor, Frasers Centrepoint Limited – the property arm of Fraser and Neave (F&N) – using a mixture of debt and equity.
The market has been expecting the acquisition, so the spotlight is now on the number of new units FCT could issue and the potential issue price.
FCT said yesterday that it is likely to conduct a private placement, but it gave no other details on the exercise. It will inform unitholders of the details of the financing structure ‘in due course’.
Bedok Point is a four-storey mall at Bedok town centre, with a net lettable area of 80,985 square feet. It commenced operations in December 2010 and was 97.4 per cent occupied as at June 30. It will be the fifth mall in FCT’s Singapore portfolio and will boost the retail real estate investment trust’s (Reit) asset size to $1.66 billion from $1.53 billion.
The price of $127 million is the average of two valuations – $128 million and $126 million – by independent valuers.
‘Our unitholders can expect to enjoy higher distribution per unit from this yield-accretive acquisition,’ said CEO of FCT’s manager Chew Tuan Chiong in a press release.
FCT is in the process of determining an optimal debt and equity-financing plan for the purchase, said Dr Chew at a separate briefing. Through the issuance of new units, the Reit can also increase its free float, he added. As at July 28, F&N held a 43.2 per cent interest in FCT and is its single largest unitholder.
Dr Chew was unable to comment on the amount of discount the new units could be priced with, but he pointed to FCT’s earlier private placement for the purchase of YewTee Point and Northpoint 2. When the exercise took place amid a ‘very volatile’ market in early 2010, the new units were priced at a 3.7 per cent discount to FCT’s adjusted volume-weighted average unit price.
Moody’s Investors Service said that the acquisition has no immediate impact on its Baa1 corporate family rating on FCT, and the rating outlook is stable.
DMG & Partners Research raised its target price for FCT to $1.79 from $1.77 and maintained its ‘buy’ call on the counter.
FCT gained half a cent on the stock market yesterday to close at $1.54. Meanwhile, F&N rose five cents to close at $6.
The conglomerate will be re-investing net proceeds from the sale of Bedok Point.
a-iTrust – BT
Ascendas India Trust Q1 DPU down 10%
ASCENDAS India Trust (a-iTrust) yesterday posted a 10 per cent year-on-year decline in distribution per unit (DPU) from 1.66 cents to 1.50 cents for the fiscal first quarter ended June 30 – an annualised yield of about 6.4 per cent, based on yesterday’s closing unit price of 96 cents.
The decrease was attributable to the effect of a stronger Sing dollar and additional financing costs for newly completed buildings. Three buildings were recently completed and the construction financing costs were recognised in the income statement upon completion.
Although income contribution from new buildings and higher recovery of utilities cost pushed total property income up one per cent year-on-year (from $30.89 million to $31.22 million), total property expenses increased 14 per cent year-on-year from $11.95 million to $13.66 million, due to an increase in a-iTrust’s portfolio as well as higher electricity tariff and cost of fuel.
Consequently, net property income was down 7 per cent from $18.94 million in the same period the previous year to $17.56 million. But in Indian rupee terms, net property income was 2 per cent higher. The trust expects additional property expenses to be progressively compensated by higher property income in the immediate future.
Gearing at the end of the first quarter was 22 per cent. This level gives a-iTrust the flexibility to fund growth via development or acquisition using debt or equity.
a-iTrust’s portfolio of 6.4 million square feet – including Zenith, Park Square & Voyager – of completed space is fairly evenly distributed among Bangalore, Chennai and Hyderabad. Occupancy for its portfolio – excluding Zenith, Park Square & Voyager – as at June 30 was 96 per cent.
Tenant demand at its latest three developments was also strong. As at July 27, the tenancy commitment rates for Park Square, Voyager and Zenith were 76 per cent, 68 per cent and 74 per cent respectively. ‘In light of the reassuring demand for our new space, we are already in the midst of planning the development of another multi-tenanted IT SEZ building of approximately 540,000 sq ft in Bangalore’s International Tech Park,’ said Ascendas Property Fund Trustee Pte Ltd CEO Jonathan Yap.