FCT – DBS

Good things are worth waiting for

At a Glance

• Results are in line with estimates
• Catalysts in sight.
• Maintain BUY, TP S$1.34, prospective 6.5-7.3% yield

Comment on Results

Ending the year well. 4Q09 results were in line with our estimates. Gross revenues and net property income were higher by 13% yoy and 25% yoy to S$24.8m and 17.6m respectively. The increase was mainly attributed to the improvement in revenue generated from Northpoint upon the successful completion of its enhancement works. Distributable income came in at S$12.8m ( 0% yoy) , translating to a DPU of S$2.04 Scts.

FCT recorded an upward revaluation of $37m even with higher cap rates (+0.25-0.75%) used by its valuers, highlighting the strong performance of its underlying assets.

Financial metrics are strong. Gearing remained relatively low at 29.9% with a healthy interest cover of 6.12x. NAV per share remained steady at S$1.22.

Catalyst for growth- acquisition. Looking ahead, other than organic growth drivers from rental reversions and contribution from Northpoint. We believe that further catalysts for growth will derive from their planned acquisition of Northpoint II and Yewtee Point properties which are both trading at almost full occupancy. This in our view, should address FCT’s current size and liquidity constraints. We have estimated a acquisition size of S$300m at 7% yield funded by a 30/70% Debt/Equity ratio in our numbers.

Recommendation

Maintain BUY, TP S$1.34. With potential catalysts in sight, we continue to like FCT as a good proxy into Singapore’s sub-urban retail sector offering a clear expansion pipeline of quality retail assets. FCT currently offers a prospective FY10-11F DPU of 6.5-7.3%.