FCT – DBSV

Making waves again

• A set of in-line results

• Steady performance supported by healthy rental reversion and acquisitions catalyst in the pipeline

• Maintain BUY at a higher TP of S$2.04

Highlights

Meeting the mark again. FCT’s 4Q12 topline and NPI grew by about 14% and 13% respectively as the REIT continued to reap the benefits of rental uplift at Causeway Point, post AEI works, and the additional contribution from Bedok Point that was acquired in August 2011. Rental reversion for the quarter was 8.2% supported by close to 100% occupancy (excluding Causeway Point which is undergoing AEI works). Consequently DPU came at 2.71 ct, putting the full-year DPU at 10.01 cts. This was 20.3% y-o-y and 5% higher than our FY12 forecast but is in line with street estimates. The outperformance was largely coming due to the better performance for Yew Tee Point and Anchor Point. FCT also took in a revaluation gain of 100.7 m translating to a 8.5% increase in NAV to S$1.53. The revaluation gain was largely driven by Causeway Point, post AEI works and the improved earning power of Northpoint with a 15 bbp and 40 bbp cap rate seen in Northpoint, Yew Tee Point and Anchorpoint..

Our View

Steady rental positive reversion anticipated. Causeway Point AEI is on track to open at the end of the year and occupancy is expected to improve sequentially going forward. Meanwhile, c.20% of the portfolio’s NLA will be up for renewal in FY13 with more than half coming from Northpoint and Causeway. Management says that while there is room to further tweak the tenant mix or AEI works at some of the malls, they will be on a smaller-scale basis. Hence, we believe operations should remain steady, while the reversion coming from causeway point should continue to reap the benefits of the AEI works. Occupancy cost is at 15-16%, a tad higher than a year ago (14-15%).

Recommendation

Maintain BUY at a higher TP of S$2.04. Stock remains attractive for its defensive earnings profile. We have raised our DCF-backed TP by 5.6% and FY13/14 DPU by 3-5% to account for the better than expected rental achieved at Anchorpoint and Yew Tee Point, higher FY13 occupancy assumption of Causeway Point (estimated at 98% vs 95% previously) and the adjustment for the lease expiry profile of various malls. Further upside catalysts hinges on the acquisition of Changi City Point, which could be executed from CY2H13. Our new TP offers investors a total return of >10%.