FCT – CIMB

Positive rental reversions

• Results in line; maintain Outperform. 1Q10 DPU met Street and our expectations (26% of our estimate). Net property income (NPI) grew 24% yoy, thanks to positive rental reversions and increased contributions after the asset enhancement of Northpoint. We expect Northpoint II and Yew Tee Point to contribute from 2HFY10. We maintain our estimates and DDM-based target price of S$1.73 (discount rate 7.9%). We see stock catalysts coming from distribution growth and occupancy resilience.

• NPI of S$15.9m, up 24% yoy. The growth was mainly attributed to positive rental reversions (average +1.3% p.a.) at Causeway Point and higher contributions from Northpoint after the completion of asset enhancement work in Aug 09. Average rents at Northpoint increased 20% from S$11psf to S$13.20psf after refurbishment.  Distributable income of S$12m grew at a slower pace than NPI, by 4% yoy due to
higher interest expense on additional debt drawn down to finance capex.

• Portfolio occupancy grew 1.3% pts to 98.6%. Northpoint’s occupancy improved the most, by 5.2% pts to 95.1%. Committed occupancy was 99% as at Dec 09.

• Asset leverage of 29.7%; NAV unchanged at S$1.22. Debt due in FY10 is only S$10m or 2.9% of FCT’s total debt.

• Northpoint II and Yew Tee Point to contribute. Earlier this month, FCT announced the acquisition of Northpoint II and Yew Tee Point from its sponsor, FCL. We expect these two assets to add to distributable income from the second half of this year. But as expiry leases in 2010 are limited to 5% of FCT’s gross rental revenue, we expect organic growth to be rather muted in forward quarters.