FCT – OCBC

Opportunities to create value

Official opening of NP last week. Frasers Centrepoint Trust (FCT)'s recently renovated Northpoint (NP) and recently acquired Northpoint 2 (NP2) were officially opened last week. In recent interviews in connection with the opening, the manager explained that the tenant mix has changed to incorporate more shops targeting youth and more family attractions (the library and new rooftop water playground, for instance)1 . The total NLA of the combined mall is approximately 235k square feet.

Acquisition strategy remains intact. FCT completed the S$290m acquisitions of NP2 and YewTee Point (YP) in Feb. The manager reiterated its intention to focus on the sponsor pipeline in the short to medium term. This includes Bedok Point (construction is 55% completed) and Centrepoint. The acquisition of the latter mall would mark a shift in asset mix away from FCT's current suburban focus. It is unlikely to be acquired in the near term, in our view, as the Somerset micromarket is still in flux with recent news articles reporting new mall Orchard Central is struggling with traffic issues2. The manager also told us that it will look for acquisition opportunities outside Singapore in the medium to long term. FCT currently has an exposure to Malaysia through its 31% stake in Bursa Malaysia-listed Hektar REIT.

Asset enhancement on the cards. FCT's already completed asset works have raised average rent post-enhancement by 41% to S$7.50 per square foot per month for Anchorpoint and by 20% to S$13.20 psf pm for NP (based on guidance). Next on the cards is FCT's biggest mall – Causeway Point (CP), which contributed 63% of 1Q10 revenue. In an interview last week, FCT's new CEO Chew Tuan Chiong said that asset works on CP have a good chance of starting this year3 . We believe the works may not be as income disruptive as NP as the work is likely to be done in stages, but this depends on the enhancement plans proposed by the manager. Revenue will also be supported by contributions from the new acquisitions.

Opportunities to create value. We have adjusted our earnings estimates to reflect the 05 Feb completion of the acquisitions (we had assumed a 01 Apr completion earlier). The acquisitions and the related S$182m private placement have increased portfolio size by 25% to S$1.46b, diversification, and increased free float and potentially also institutional interest. FCT can continue to create value for unitholders through rent increases, asset works and further acquisitions, in our view. Maintain BUY rating and S$1.50 fair value (19% total return).