FrasersCT – CIMB

Addressing tenant sustainability

• Met expectations. 1Q09 results were in line with Street and our expectations. DPU for 1Q09 was 1.67cts, 24% of our full-year forecast. Gross revenue of S$19.5m deteriorated 3.2% yoy due to planned asset enhancement work at Northpoint. Additionally, property expenses increased 7.5% on higher property taxes. However, net property income margins improved to 65.9% from 63.8%, supported by doubledigit growth in rental reversions for Causeway Point (+18.9%) and Anchorpoint (+17.5%). Portfolio occupancy climbed to 88.7% from 87.7% in 4Q08 as occupancy at Northpoint improved despite ongoing asset enhancement work.

• Budget measures to aid retail tenants. A 40% property tax rebate for commercial buildings has been announced in Budget 2009. Management will be passing on the rebate benefits to its tenants. While this will not result in DPU improvements, it should help to retain tenants, who are facing increasingly difficult retail sales. Other fiscal measures which would ease tenants’ operating costs and stimulate retail spending include: 1) a 12% cash grant of up to S$300 of each employee’s monthly wage to businesses; 2) the underwriting of bank loans to SMEs by the government; 3) a 20% personal income tax rebate, capped at S$2,000; and 4) additional GST credits for households.

• Maintain Outperform and target price of S$1.06. We maintain our DPU estimates. The government’s fiscal measures and management’s decision to pass on tax-rebate benefits to tenants should support tenants’ business sustainability in the short to medium term. FCT remains our preferred pick for suburban retail exposure for its lower 0.52x P/BV vs. CMT’s 0.6x. Maintain Outperform.