DPU up QoQ. Frasers Centrepoint Trust (FCT) posted S$21.1m in 2Q09 revenue, down 2.4% YoY but up 8.3% QoQ. NPI margins improved to 69.7% from 66.8% a year ago and 65.9% in 1Q09 due to the absence of one-off expenses and cost management. FCT will distribute S$11.6m for the quarter, up 7.3% YoY because of a larger 100% payout (versus 90% a year ago) and up 11.3% QoQ. Unitholders will receive 1.86 S cents per unit, or an annualized yield of 10.7%. FCT's results were slightly better than expected: 1H09 revenue and distributed income make up 52% of our full-yearestimates.

Asset enhancement winding up. In recent quarters, the trust's earnings have been distorted by planned enhancement works at Northpoint. The property earned S$2.5m in net property income, down 29.1% YoY but up 58.2% QoQ as the temporary vacancy situation corrected in line with progress on the works (72% actual occupancy at Mar 09 versus 52% as at Dec 08). We expect occupancy figures to improve further in 2H09, with the work scheduled to be completed by June 2009. The manager has secured or is in advanced negotiations for leases on 94% of the mall's NLA. FCT re-affirmed its guidance for post-enhancement rents at the mall, and says Northpoint can achieve S$4.5m in NPI with 100% occupancy - which is 77% higher than what the property earned this quarter.

Portfolio holding course. FCT's other two properties maintained occupancy rates of 99.5%-100%. Causeway Point recorded an 8% QoQ increase in NPI to S$11m, while Anchorpoint registered a 16% QoQ increase in NPI to S$1.1m. Only 0.9% of portfolio NLA was renewed in 2Q09, at a 7.3% increase over preceding rents. This is a significant step down from the increases achieved in the preceding four quarters, which have all been in the high teens.

For stability seekers. We still like FCT's relatively "safer" suburban portfolio and it's mass-market, non-discretionary spending focus. Our valuation prices in a 5-7% decline per annum in new rentals/ renewals over the next two years (except for the uplift at Northpoint post-works). FCT is geared at a low 29.7%, with the bulk of its loans maturing in July 2011. We think FCT is an attractive proposition for investors seeking yield stability. However, from a value perspective, we think there are better deals out there in the sector. The lack of critical mass in the current portfolio, with growth plans on hold, is also a concern. Maintain HOLD with S$0.62 fair value.