FCOT – Phillip

3QFY10 Results

• 3Q10 revenue of $29.2 million, net property income of $22.7 million, distributable income of $7.7 million

• 3Q10 DPU of 0.25 cents

• Downgrade to Hold, fair value of $0.17

FCOT recorded 3Q10 revenue of $29.2 million (+28.9% y-y, -1.8% q-q), net property income of $22.7 million (+32.9% y-y, -3.9% q-q) and distributable income available to unitholders of $7.7 million (+38.7% y-y, -21.5% q-q). 3Q10 DPU was 0.25 cents (-65.8% y-y, -21.9% q-q). The improved y-y performance is mainly attributed to the contribution from Alexandra Technopark. However we also note that there was a general drop on a q-q basis. DPU was much lower from the previous year due to the increased unit base from the equity fund raising. Revenue contributions from Singapore, Australia and Japan are 52%, 35% and 13% respectively. Average portfolio occupancy rate is 93.1%, with most properties holding steady. Zooming in on the individual properties, KeyPoint and Galleria Otemae occupancy increased by 2.9% and 7.7% respectively however 55 Market Street saw a drop of 6.1%. There are five properties with full occupancy. KeyPoint has seen a gradual take-up in occupancy since management started repositioning the property to capitalize on the opening of the circle line MRT station. On Japan side, Cosmo Plaza continues to be the drag and the property is still listed as an asset to be sold. Effective occupancy is only 25.6% which drags down overall Japan properties occupancy to 77.6%.

FCOT has total debt of $818.5 million and gearing is 40.4%.

We think the property portfolio has shown consistent results, with not much change from the prior quarters. Step-by-step, we have seen management carrying out its plan to rebalance the REIT. A quick flow of event is the recapitalization of the REIT through the injection of Alexandra Technopark, forming a natural hedge of the foreign sourced income by rebalancing debts in the local currencies, the improvement in occupancy of KeyPoint. We believe there is further upside to KeyPoint occupancy rate. Something we would like to see is the divestment of the Cosmo Plaza and the AWPF investment since these two are not contributing effectively to the bottomline and which is also part of management plan when it took over from the previous management team.

We tweaked some of our expenses assumptions as we had been overly conservative in estimating the non-core expenses. This reduces our FY10E DPU forecast by 11% to 1.12 cents. Accordingly, we lower our fair value from $0.18 to $0.17. Thus we are downgrading our recommendation to Hold and reiterate that our said divestment and lowering of debt would be a re-rating catalyst for the stock.