FCT – CIMB

Steady performer

• Met expectations. 3Q09 results are in line with Street and our expectations. DPU grew 3.2% yoy to 1.94cts, to make up 27% of our full-year forecast. Distribution income (+4.1% yoy) and net property income (+4.4%) grew despite disruptions from enhancement work at Northpoint, boosted by higher contributions from Causeway Point and Anchorpoint.

• Occupancy stable; reversions positive. Portfolio occupancy was stable at 93.2% (-0.2% qoq) even though Northpoint’s occupancy was affected by enhancement work. Renewals were on track and reversions were 14% above preceding rates. This translates to an annual increment of 4.5%, assuming typical 3-year leases.

• Northpoint and other leasing updates. Enhancement work on Northpoint is expected to end shortly. Physical occupancy was 75% as at end-Jun 09. However, 97% of the net lettable area has been leased, including space being negotiated with tenants (talks in advanced stage). Management estimates that enhancement will increase Northpoint’s average rents by 20% (to S$13.20 psf) and full-year net property income by 30% (to S$18m). Additionally, 98% of gross rental income for FY09 has been locked in.

• Northpoint 2 and Yew Tee Point ready for injection. Northpoint 2 and Yew Tee Point, currently held by sponsor FCL, appear ready for injection in the short term with committed occupancy rates of 100% and 94% respectively. In our view, Northpoint 2 is more likely to be injected first as it is already fully occupied and seamlessly integrated with Northpoint. The put and call option announced last year estimates an acquisition price of S$139.5m-170.5m (S$1,632-1,994 psf).

• Maintain Outperform and target price of S$1.12. FCT’s progress in pre-leasing renewals, positive reversions and stable occupancy reaffirm our belief that suburban retail is stable despite the downturn. Our estimates and DDM-derived target price of S$1.12 (discount rate 9.2%) are unchanged. Maintain Outperform.