Frasers Centrepoint Trust: Strong uplift from Causeway Point (OCBC)

Record high DPU. Frasers Centrepoint Trust (FCT) announced 4QFY11 DPU of 2.35 S cents, representing an 8.8% YoY and 20.5% QoQ increase. This is the highest-ever quarterly DPU paid out, and surpassed both our and consensus forecasts. Coupled with 9MFY11 DPU of 5.97 S cents, fullyear DPU amounted to 8.32 S cents, or 5.8% ahead of our estimates (2.7% above consensus). This translates to a 5.7% DPU yield.

Strong performance from Causeway Point. The solid performance, we note, was achieved on the back of strong performance upswing from Causeway Point (CWP), following the re-opening of refurbished sections. This lifted FCT's quarterly gross revenue and NPI to S$34.1m (+5.1% YoY) and S$25.3m (+13.7% YoY) respectively. Management shared with us that 65.5% of the refurbished works at CWP had been completed, and the asset enhancement initiative (AEI) is on track to fully complete in Dec 2012. With next phase of work to shift to the higher levels, we expect the disruption to revenue to be more muted.

Healthy financial and operating statistics. FCT's financial position as at 30 Sep remained at a healthy level of 31.3% (vs. 31.7% at end-3Q) in spite of a 15.3% QoQ increase in total debt, helped by portfolio revaluation gain of S$97.2mn. The average rental rate for renewal leases signed in 4Q was also 7.9% higher than the preceding leases. In addition, its portfolio occupancy improved from 87.6% in 3Q to 95.1%, boosted by sharp recovery in occupancy at CWP from 78.3% to 92.0% in the same period.

Positive outlook. Going forward, we believe FCT will continue to post significant growth in its rental income as the full contribution of CWP and newly-acquired Bedok Point has yet to be realized. According to management, CWP is expected to provide over 20% increase in NPI when the AEI is completed, while its occupancy rate is likely to stay above 90% throughout. Bedok Point, on the other hand, is likely to add S$7m to FY12 NPI.

Upgrade to BUY. We raise our FY12 forecasts by 3.3-8.3% to factor in the latest results and lower cost of debt. We also introduce our FY13 estimates and roll over our RNAV-based valuation to FY12. Consequently, our fair value is now raised from S$1.57 to S$1.68. We turn positive on FCT as its suburban malls are likely to remain relatively resilient even in times of market uncertainty. We also like its strong execution and steady pipeline of assets from its sponsor. Upgrade from Hold to BUY.