FCT – CIMB

Suburban malls to stay resilient

• Maintain Outperform. Our site visits to FCT’s three properties show occupancy and traffic count remaining high. Only finishing touches to asset enhancement works for North Point are left, with most of the tenants in the fitting-out stage now. Retail space is 94% committed despite expectations of weak retail sales growth, while renewed rents and new leases in Northpoint were up 14% in 1H09.

• Outlook for FCT’s properties remains positive. Despite a negative macro environment, we believe that suburban retail malls such as FCT’s will be resilient with no significant new supply in the suburbs, limited lease expiries in 2009 and stepped-up rents incorporated in 86% of its leases.

• Changes in estimates. We increase our occupancy estimate for North Point to 85% from 70% in view of full occupancy from 2H09; and rental growth assumptions across the portfolio to 3% in FY11 from 2%, on expectations of improved economic conditions.

• DDM-derived target price of S$1.12 (from S$1.06). Our DPU estimates increase by 5-5.6% for FY09-11. We also use a lower discount rate of 9.2% from 9.4% earlier with the application of a lower risk-free rate of 4.8% across our REIT universe. Our DDM-derived target price rises accordingly to S$1.12.