Current S$1.46
Target S$1.65
Previous Target S$1.63
Up/downside 13.59%
FY11 ended on a high note for FCT, aided by a rebound in occupancy and rental reversions from a partially-refurbished Causeway Point. We continue to like its resilient suburban retail exposure and see the refurbishment of Causeway Point as a key game-changer. FY11 DPU was spot on for us though slightly above consensus. 4Q11 DPU forms 28% of our estimate on stronger Causeway Point contributions. We raise our DPU estimates and DDM-based target price (discount rate 8.4%) on lower interest costs. Maintain Outperform.
Positive rental reversions; strong occupancy
We expect a further pick-up in occupancy at Causeway Point and positive rental reversions. 4Q was marked by a sharp recovery in occupancy there and rental reversions (8.6% for FY11, 7.9% for 4Q11, 7.2% for FY10) for its portfolio. Occupancy at its other assets also held up above 95%.
Causeway Point a potential game-changer
Having gone through the most intensive period of AEI with good rental reversions for refurbished space, Causeway Point could change the game for FCT in FY12. Occupancy surged to 92% from a trough of 69% in 2Q and is expected to sustain above 90% in FY12. With 65.5% of the refurbishment completed, work should henceforth be less disruptive, given its progression to higher levels.
Pleasant surprise from lower costs of borrowing
Interest cost savings should continue. Management refinanced its S$260m 4.12% p.a. CMBS in July and hedged this at a low interest cost of 3.09%. This brought effective borrowing rate down to 3.0% from 3Q’s 3.8%. Refinancing of its S$75m MTN due in 2012 should generate further savings, given a high cost of 4.8%. After the drawdown for the Bedok Point acquisition and revaluation of its portfolio, asset leverage was a healthy 31%.
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