FrasersCT – DBS

Turning in a good performance

Story: FCT reported Q3 distribution income of $12.2m (+19% yoy), bringing 9M contributions to $35.4m or 80% of our full year projections. This was achieved on a 10% hike in revenue to $20.8m. Management indicated it would distribute 95% of Q3 income or $11.6m (DPU: 1.88cts). However, it is committed to distribute 100% of its earnings for the full year. The better performance was largely driven by higher contributions from Anchorpoint and positive rental reversions at Causeway Point (CP). An estimated 43% of NLA at CP was renewed at 14% above preceding levels. This more than offset the income vacuum from Northpoint as occupancies declined to 83% during this AEI period.

Point: Looking ahead, DPU is expected to be underpinned by organic and acquisition growths. It has 31% of portfolio NLA to be reviewed in FY09. In addition, progressive roll out of the $38.6m AEI at Northpoint should boost NPI by $3.7m pa (+7%) when completed in 3Q09. Meanwhile, acquisition pipeline is on track with Northpoint II scheduled to TOP by Aug 08 and injected in late 08/early 09. This mall is 96% pre-committed and should be accretive to earnings when purchased. Other properties such as Yew Tee Mall and Bedok Mall are expected to be included in 1H09 and 2010/11 respectively. We expect the group to tap debt and capital markets for these purchases. Given its current gearing of 29.5% as at 2Q08, which would enable it to improve its asset size and stock liquidity.

Relevance: We have raised our FY08 and FY09 DPU marginally to 7.2cts and 7.8cts to reflect the better rental rates. At the present level, the stock is offering 6.3% and 6.8% yield. Our price target of $1.34, based of risk free rate assumption of 3.9%, offers 17% upside.