FCOT – DBSV

Another good set of results

• In line with expectations, 1H DPU forms 53% of our FY12 forecast.

• Drop in occupancy likely transient; expect healthy, positive rental reversions to continue.

• Maintain BUY at an unchanged TP of S$1.76

Highlights

In line with expectations. On a y-o-y basis, 2Q12 revenue and NPI rose 27.4% and 30.4% respectively, on the back of a strong portfolio performance, partial completion of the AEI works at Causeway Point and contributions from Bedok Point. However, revenue rose by a more sustainable 5% on a q-o-q basis. Consequently, 2Q DPU came in at 2.5ct representing a 20.8% y-oy and 13.6% q-o-q increase, even though the trust retained S$659,000 for future distribution. 1H DPU forms 53% of our FY12 forecast. The group renewed 77177sf of retail space at 11% higher than the preceding rental rate.

Our View

Healthy operational metrics. While occupancy fell 4 ppt to 93.5%, we believe it is transient, and attributable to the tenant changeover for Northpoint’s foodcourt, as well as thecommencement of the AEI work at levels 5 and 7 at Causeway

Point. Upon the opening of the food court, portfolio occupancy should move closer to c95%. Meanwhile, our recent site visit to Causeway Point reaffirmed our positive view of the AEI works. On levels 1 and 2, the freed up space from the downsizing of the anchor tenant space has been rented out to new tenants, thus enhancing the mall tenant mix and increasing its attractiveness. Meanwhile footfall was also healthy, therefore, we think the trust should be able to drive rental reversions for the remaining c48,000sf of leases expiring this year.

Balance sheet remains robust. Gearing is at a healthy 30.9% with no major refinancing (only S$75m in FY12). Average cost of borrowings dropped marginally by 3.06% to 3.04%

Recommendation

Maintain BUY. We continue to like FCT for its pure suburban exposure and strong balance sheet. FCT is currently offering a FY12/13 prospective yield of 5.7% – 6.1% and our unchanged DCF-backed TP of $1.76 offers a total return of close to 20%.