FCT – OCBC

LAUDABLE SET OF 2Q RESULTS

•2QFY12 results above expectations

•Positive performance to continue

•In search of growth opportunities

2QFY12 DPU at all-time high

Frasers Centrepoint Trust (FCT) delivered a strong set of 2QFY12 results that were ahead our expectations. NPI and distributable income were up 30.4% and 30.6% YoY to S$26.2m and S$21.3m respectively, driven by positive rental reversions of 7.2-12.5% (11% on average), full-quarter contribution from Bedok Point, and strong uplift from Causeway Point (CWP). In addition, DPU rose by 20.8% YoY to a record high of 2.50 S cents, notwithstanding a distributable amount of S$0.7m being retained for the quarter. As a result, 1HFY12 NPI came in at S$51.1m (+31.9% YoY), forming 53.4% of our fullyear forecast, while DPU hit 4.70 S cents (+16.9% YoY), meeting 50.2% of our DPU assumption. This exceeds our expectations, considering that a total of S$2.3m (or ~0.28 S cents) retained thus far may be distributed in the coming quarters.

Temporary dip in occupancy; set to improve

As at 31 Mar, FCT's portfolio occupancy was at 93.5%. This represents a 10.6ppt improvement from 82.9% seen a year ago, but a 4.0ppt decline from 97.5% in the prior quarter. According to management, the fall was attributable to a temporary closure of the food court at Northpoint due to tenant changeover and the commencement of scheduled refurbishment works at levels 5 and 7 of CWP. When the food court reopens in May and the asset enhancement initiatives (AEIs) at CWP complete in Dec, we expect the occupancy at the respective malls to improve substantially.

Maintain BUY

For 2HFY12, FCT anticipates its positive performance to be sustained, as it continues to benefit from positive rental reversions and stronger performance at its malls. While management now reveals that the injection of Changi City Point may not happen in the near future, it is exploring other ways to optimize yields, such as AEIs and joint developments with its sponsor. We note that FCT's aggregate leverage is at a strong 30.9%. This positions the REIT well to pursue its growth plans. Maintain BUY with a revised fair value of S$1.74 (S$1.68 previously) after factoring in the 2Q results.