FCT – CIMB
Factoring in acquisitions
• Maintain Outperform with higher target price of S$1.64 (from S$1.21). 4Q09 results were in line with Street and our expectations. Full-year DPU of 7.51cts forms 103% of our full-year forecast. We are assuming that Northpoint 2 and Yew Tee Point will be injected in the near future at an estimated purchase price of S$326m, and raise our rental growth estimates to 3-5% (from 2%). Following our adjustments, our DPU estimates for FY10-11 rise by 6-18%, while our DDMderived target price (discount rate 8.1%) rises to S$1.64 from S$1.21. We also introduce FY12 estimates. We remain confident that FCT’s rents will stay resilient, backed by limited supply and tenants catering to non-discretionary spending.
• Good performance. 4Q09 DPU of 2.04cts, which includes income retained from previous quarters, deviated marginally from the 2.05cts declared in 4Q08. However, if retained income were stripped away, underlying DPU for 4Q09 (1.95cts) would have grown 23% yoy. Net property income for the full year
(S$59.9m) was up 5.8% yoy, driven by a strong performance from Causeway Point and the refurbished Anchorpoint. Notably, there were positive rental reversions of 15% in FY09, led by the largest asset Causeway Point. Occupancy rose 4.1% pts to 97.3% with the completion of asset enhancement work in Northpoint in the quarter.
• Asset enhancement update. Asset enhancement at Northpoint has been fully completed, in August. Some 97% of the space has been leased although physical occupancy was lower at 89.9%, as some tenants were still fitting out. Projected rents on completion average S$13.20psf, up 20% from before the refurbishments. Plans for Causeway Point’s refurbishment are on the cards and are likely to be carried out in phases to minimise disruptions to business.
• Expect equity for acquisitions in the near future. We believe FCT will use equity and debt to fund its acquisition of Northpoint 2 and Yew Tee Point in a bid to increase its stock liquidity. We have assumed 25% debt and 75% equity for the acquisition.