Northpoint AEI is almost completed. Asset enhancement works (AEI) at Northpoint is expected to complete soon with tenants currently fitting out their premises. Committed and leased out space accounts for c. 94% of total net lettable area (NLA). Post completion, FCT’s net property income (NPI) will be lifted by 7% from FY10 onwards.

Portfolio exhibits resilience. FCT has (i) secured c.96% of FY09 income, and (ii) maintained positive rental reversions albeit at a tighter spread, given the tough operating climate. Renewals in 3Q09-FY10 account for c.15% of rental income, mostly from Causeway Point, its largest asset. We expect renewal activities to remain stable given strong pedestrian traffic at FCT’s various malls.

Asset injections are a possibility in the medium term. Based on latest closing share price, FCT is trading at an implied property yield of c6.3%-6.8%, which is reasonable against its property yield of 6%. However, it remains higher than our estimated 5.0% -6.5% NPI yield for its targeted asset, Northpoint 2, based on valuation detailed in its put-call option back in Oct 07. While management remains keen to inject this asset, they have re-iterated that any deal would
have to be yield accretive to the portfolio and to unitholders. In addition, other than Northpoint 2, Yew Tee Point, another sub-urban mall, has recently been completed. If these 2 assets are injected into FCT, its portfolio NLA could potentially grow by up to c.23%.

Maintain BUY, TP S$0.97. FCT currently offers an absolute return of 18%, backed by a stable FY09F-10F stable yield of 8%. Further re-rating catalysts will hinge on asset injections.