Frasers Centrepoint Trust: 3Q NPI boosted by Northpoint

Pays out 1.94 S cents. Frasers Centrepoint Trust posted S$21.2m in gross revenue, up 1.8% YoY and 0.5% QoQ. The REIT will distribute S$12.1m to unitholders, up 4.1% YoY and 4.4% QoQ. The YoY and QoQ improvements in distributions are due to a 100% payout this quarter versus a 95% payout in 2Q09 and 3Q08. Excluding the payout difference, distributions would have slipped. Results beat our expectations.

3Q NPI boosted by Northpoint. Causeway Point (CP) and Anchorpoint registered a 7% and 7.7% QoQ drop in net property income (NPI) respectively in 3Q09. Margins fell as revenue recorded smaller QoQ changes of -3% and 0.2% at the two properties. AP also saw occupancy fall from 99.5% three months ago to 93% though the manager did say committed occupancy stands at 97.2% there as at June. The erosion in NPI at these two properties was offset by gains at Northpoint, where asset enhancement (AEI) work is finally drawing to a close. The combination of rising occupancy and higher post-AEI rents led to a 35% QoQ increase in NPI at the mall. Consequently, net property income was up 0.1% for the overall portfolio.

What next? 97% of NP's NLA has already been leased or is in advanced stages of negotiations with tenants. The manager is projecting a 20% increase in average rents at the mall from S$11 per square foot per month to S$13.20 psf pm. This should flow through to 4Q09 results. Meanwhile, FCT issued S$75m 3-year fixed rate notes in June, which it will use to repay short-term debts. Gearing is expected to consequently fall to below 30%. AEI plans at CP, which were postponed, could potentially be resurrected now that the macro picture and credit market look to be stabilizing. But CP is the portfolio's key revenue driver and investor appetite for DPU stability may be a constraint. Meanwhile, the manager said two malls in the pipeline were "ready for acquisition". Financing and pricing of any acquisition is still a question mark, however, in our opinion.

Valuation. We have increased our earnings estimates to reflect the positive rental reversions achieved in 9M09 as well as the post-AEI support from NP. We still expect declines in achieved rent in FY10, however. We are also lowering our cap rate assumptions by 40 basis points. Our new fair value estimate is S$0.95 (prev: S$0.75), at par to our SOTP value for FCT. We are estimating yields of 7.2% and 7.7% in FY09 and FY10. Maintain HOLD.

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