FCT – CIMB

Suburban still in fashion

FCT hit a record high quarterly DPU in 2Q12. In a somewhat atypical move, management guided for positive factors to help sustain its performance in 2H12. Backed by favourable retail tail winds and results from Causeway Point AEI this year, were main bullish.

2Q12/1H12 DPUs were broadly in line with our estimates and consensus, forming 27/51% of our full-year estimates. We raise DPUs to factor in stronger rentals and margins. Maintain Outperform with higher DDM-based target price (discount rate of 7.9% vs. 8.4% previously.

A good quarter

2Q12 NPI was up 30% yoy as a 1.7% pts improvement in NPI margins added to a 27% increase in top-line with higher occupancy at Causeway Point and rental reversions. Performance was good with 2Q12/ 1H12 DPUs up 21%/17% yoy and forming 27%/51% of our full-year estimates, despite higher retained earnings and more management fees paid out in cash (80% vs. expected 70%). Management has also, in a somewhat atypical move, guided for positive factors to help sustain FCT’s performance in 2H12. Occupancy at Causeway Point was at 91.3% as at end-2Q12 and is expected to trend around 90% for the rest of FY12. We expect any impact to be mitigated by retained earnings of S$2.3m in 1H12 (1H11: S$0.3m). Space under AEI is likely to have been fully pre-committed with management guiding for full occupancy on completion in Dec 12.

Positive rental reversions

Rental reversions strengthened to +11.0% over preceding leases vs. 1Q12’s +9.6%, aided by NorthPoint (+12.5%) and Yew Tee Point (+12.1%). While occupancy dipped to 92.5% from 99.7% at North Point due to a change in food-court operator, we are not overly concerned as we expect higher rentals for new leases given tight demand for space at the mall and the new foodcourt expected to be operational by May 12.

Potential interest savings

We expect some interest cost savings when FCT refinances its S$75m MTN (14% of total debt) in Jun 12, given a fairly high cost of 4.8%. Asset leverage remains a fairly healthy 31%.