FCT – CIMB
In good shape
• DPU in line despite the retention of 5%. 2Q09 results are in line with Street and our expectations. 2Q09 DPU grew 6.4% yoy to 1.86cts, 26% of our full-year forecast. Distribution income of S$11.6m grew 7.3% yoy and excluded S$0.6m (5% of available distribution of S$12.2m) retained in the quarter. Gross revenue of S$21.1m deteriorated 2.4% yoy due to planned asset enhancement work at Northpoint. Despite this, net property income grew 2% yoy and 15% qoq to S$14.7m, attributable to: 1) expenses coming off a higher base in 4Q08 from oneoff maintenance expenses; 2) greater economies of scale as expenses were partially shared with the completed Northpoint 2 held by the sponsor; and 3) upgrades to M&E systems during asset enhancement work that resulted in reduced utility costs.
• Operations in good shape. Despite ongoing asset enhancement work in Northpoint, portfolio occupancy continued to climb to 93.4% from 88.7% in Dec 08 as occupancy at Northpoint improved 19.9% pts to 72.1%. Additionally, traffic count for the whole portfolio moved up 8% yoy.
• 96% of gross rental income locked in for FY09. FCT has made good progress with lease renewals in 2Q09. To date, it has locked in 96% of gross rental income for the rest of FY09. This leaves only 15,706 sf of space expiring in FY09. Leases renewed were up 7.3% over preceding rents, or an estimated 2.4% increase per annum. Pre-leasing at Northpoint was positive with 94% of the space taken and completion is expected in Jun 09.
• Intention to term out S$80m of short-term debt. FCT has S$80m of short-term debt that it rolls over every three months. Management is exploring options to term out these short-term loans for longer periods.
• Maintain Outperform and target price of S$1.06. FCT’s progress with pre-leasing renewals, improving occupancy and unfaltering traffic count are encouraging in this difficult time. FCT remains our preferred pick for suburban retail exposure. Our DDM-derived target price of S$1.06 (discount 9.4%) is unchanged. Maintain Outperform.