FCT – CIMB

Festive cheer

Stronger rental reversions and occupancy characterised 1Q12.Backed by resilient suburban retail exposure and a refurbished Causeway Point, FY12 looks like another strong year.

1Q12 DPU meets consensus and our estimates, at 24% of our FY12 estimate notwithstanding retained earnings of S$1.6m. We keep our DPU estimates and DDM-based (disc. rate: 8.4%) TP. Maintain Outperform.

Festive cheer

We expect a strong FY12 on the back of improved occupancy at Causeway Point, with refurbished space progressively coming on stream. 1Q12 NPI was flat qoq as a higher topline was negated by higher operating expenses. Broad trends appear favourable for FCT. Rental reversions were strong at 9.6% over preceding rates (4Q11: 7.9%), led by Northpoint and Causeway Point. Occupancy at all malls except newly-acquired Bedok Point improved, up 2.4% pts overall to 97.5%.

Causeway Point on track

To allow tenants to tap the festive season, we believe that some renovation work had been pushed back at Causeway Point, resulting in a higher 96% occupancy in 1Q12 and in part a 15% increase in NPI qoq. Occupancy should dip to about 90% after Chinese New Year as FCT embarks on its next phase of work. The impact, however, will not be major since work will be on the higher levels (where rentals are lower) with the progressive commencement of business in the refurbished sections. With 80% of the work completed, AEI is on track for completion by end-2012.

Cost of borrowing should drop

Cost of borrowing crept up to 3.1% from 3.0% after FCT refinanced its short-term acquisition facility with a secured loan at a fairly attractive margin of 85bp. We expect interest cost savings when it refinances its S$75m MTN (14% of total debt) in Jun 12, given a high cost of 4.8%. Asset leverage remains a healthy 31%.