FrasersCT – OCBC

Investment case remains intact

4Q slightly better than expected. Frasers Centrepoint Trust’s (FCT) delivered 4Q07 revenue of S$19.8m, 5.0% higher than its prospectus guidance, with distributable income of S$10.3m and DPU of 1.67 cents. Distributable income was higher than FCT’s own forecast by about S$1.23m and this was attributed to associate income (from the recent acquisition of Hektar REIT), which was not anticipated in the forecast. The results are broadly in line with our estimates.

Anchorpoint refurbishment to complete in Nov. FCT’s asset enhancement of Anchorpoint Shopping Centre (ASC) is on track for completion by Nov 2007. The indicative rent from the revamped ASC is S$7.2 psf/month and this is about 35% above the preceding rent. The next asset that is likely to be revamped will be Northpoint and construction to commence in early 2008. This refurbishment is likely to be very extensive and would involve a seamless integration with the extension (Northpoint 2) that is presently being built by its sponsor. This in turn will affect DPU marginally and delay growth to FY09. We have thus revised our FY08F
DPU from 7.57 cents to 6.87 cents. FCT has also indicated that Northpoint 2 is likely to be acquired by late FY08 and should increase its portfolio size by about 10%.

Price to book is down as we expected. In our Aug 2007 report on FCT, we had articulated that the market could be punishing FCT for its perceived high valuation as measured by its Price/Book (P/B) ratio. We argued that the high ratio was mainly due to the fact that FCT had not revalued its book at its 1H results, unlike other retail REITs which did, thus resulting in much lower P/B ratios relative to FCT. In the current results, FCT has revalued its assets and has achieved a revaluation surplus of about S$52.5m (+ 5.6%). This in turn has bososted its book value to S$1.16 (from S$1.09). More importantly, this new NAV has lowered its P/B to only 1.29x (down from 1.4x in Aug) and in line with the sector average.

Maintain BUY. The investment case for FCT is simple; pipeline of properties to acquire from its parent, growth from asset enhancements, and rent reversions. The investment case remains intact and growth should start to materialize from FY09. We maintain our BUY rating and our fair value at S$1.67.