FCT – DMG

Growth intact; asset enhancement in focus

3QFY10 results in-line with expectations. FCT reported 3Q10 DPU of 2.07¢ (+6.7% YoY; +0.5% QoQ), representing 25% of our FY10 DPU forecast of 8.3¢. Net property income rose 46.3% due to accretive contributions from Northpoint 2 and YewTee Point. FCT will trade ex-3QFY10 distribution on 29 July. We expect asset enhancement works of Causeway Point to be yield accretive in the long term. Maintain BUY, DDM-based TP of S$1.66.

Causeway Point refurbishment likely to boost long term DPU by 10%. FCT has commenced the refurbishment of Causeway Point and the AEI programme is expected to take 30 months to complete. Capex is estimated at S$72m and will be financed fully with debt (~3.5% interest). Management guided a 22% increase in net property income upon completion in 1QFY13. This is based on a projected passing rent of S$12.2/sqft (current S$10.2/sqft), which we believe is reasonable. Occupancy for Causeway Point is likely to decline to the 75% level in FY11, resulting in a 7% decline in DPU. We expect a strong DPU recovery in FY12 as the bulk of lower level refurbishment works will be completed. Upon completion, we estimate FY13 DPU to be 0.9¢ (or 10%) higher than our current estimates. Over the course of this AEI programme, we expect net DPU to be marginally higher at 0.1¢.

Augurs well with the relocation of KTMB to Woodlands. The government recently announced the relocation of Malaysia’s KTMB station from Tanjong Pagar to Woodlands by July 2011. We believe this will likely have a direct impact on retail footfall in Causeway Point given that the mall is located next to Woodlands MRT, and visitors are highly likely to patronise the mall enroute from the railway station to the MRT.

Short term impact, long term gain. Whilst DPU is expected to be impacted in the near term, we expect returns from this investment to be accretive in the long term. Reduce FY10 DPU estimates to 7.9¢. Maintain BUY; TP of S$1.66.