FCT – DBSV

Making waves at Causeway point

• Makeover of Causeway Point to cost S$72m

• DBSV projects ROI of 15%, ahead of management guidance of 13%

• Lowered FY11 DPU estimates by 5% due to AEI works at CWP

• BUY with raised target price of S$1.66 on higher profitability post AEI.

Record 3Q10 DPU of 2.07 Scts. Revenues and net property income increased by 44.7% and 46.3% to S$30.7m and S$21.5m respectively with new contributions from Yew Tee Point and Northpoint II acquisitions. Northpoint 1 continued to deliver strong yoy growth post asset enhancement works. Distributable income grew to S$16.3m (+34.6% yoy) translating to a DPU of 2.07 Scts.

Causeway Point (CWP) enhancement works over 30 months will cost S$72m. Together with its results announcement, FCT unveiled plans to re-make aging CWP over the next 30 months. When completed at S$72m, the AEI works are expected to yield 13% ROI.

DBSV expects ROI of 15% instead. We believe that management’s initial guidance is conservative. As Causeway Point is the only mall located in Woodlands town, refurbishment of the mall should fetch higher than the guided S$12.20 psf pm, which is even below Northpoint’s achieved average of S$13.20 psf pm. We project 15% ROI and average rents of S$12.50 psf pm in our estimates.

BUY, TP S$1.66. We lowered FY11 estimates by 5% to take into account lower occupancies at CWP during refurbishment. However, we raised TP to S$1.66 for higher ROI estimates on CWP. Continuous enhancement works will drive yields for its underlying portfolio. In addition, longer-term prospects are underpinned by visible pipeline (Bedok Mall in CY11, Changi Point – longer term) of new malls injections.