FCT – DBS

Solid as a rock

• In line with expectations
• Pace of rental growth on reversions still at double digits
• Outlook resilient, Northpoint construction works completed
• Buy with TP of $1.08

Results largely in line. FCT recorded a 3.4% yoy rise in distribution income to $12.1m (DPU 1.94cts) in 3Q09 on a 0.5% uptick in revenue to $21.2m. NPI improved 4.4% yoy to $14.7m thanks to lower maintenance and other expenses, which lowered expense ratio to 30.7%.

Rental growth on reversion maintained at double-digit levels. The better performance was attributed to renewal of 12% of portfolio NLA (77,566sf) in Q3 at rents 14% above preceding levels while overall occupancy remained at 93%. FY09 income is well secured with only 2% of NLA left to be contracted this FY. The group’s pure exposure to the suburban retail sector and lack of competing properties within its malls vicinity should continue to provide income resilience. It augurs well with 10%, 42% and 35% of its income is up for renewal in FY10, FY11 and FY12 respectively. Beyond this, AEI works at Northpoint will be completed and is 75% occupied presently. Up to 97% of the 149,400sf NLA is leased or under negotiation and average rents are expected to be 20% higher than before. This should lift bottomline by c8%.

New acquisitions remain a closely watched driver. Plans to include Northpoint II and Yew Tee Mall are still in place. With cost of equity declining owing to higher stock price, any transaction would likely be accretive for unitholders.

Maintain Buy. We have raised FY09 DPU to 7.3cts as rental rates have generally held up well vs our projection of a 5% decline. Share price have appreciated in recent weeks and the stock is trading at 0.8x P/bk NAV and implied portfolio yield of 6.5%. Our revised DCF target price of $1.08 offers a total absolute return of 15% over the next 12 months.