FCT – CIMB

Refinancing savings

As we have been highlighting refinancing savings as a potential catalyst for some time,FCT’snew MTN issuance wasn’t unexpected. Still, the good rates it securedwerea nicesurprise. We continue to like its resilient suburban retail exposure.

We raise DPUs and DDM-based target price (discount rate:7.9%) to factor ininterest cost savings on refinancing. Maintain Outperform, with other catalysts expectedfrom stronger contributions from Causeway Point’sAEI and Northpoint.

What Happened

FCT has issuedtwo new MTNs (S$70m at 2.3% due 2015 and S$30m at 2.85% due 2017). Proceeds will be used for therefinancing of existing short-term borrowings, AEI, investments and working capital.

What We Think

We expect part of the proceeds to be channelled tothe refinancing of its S$75m MTN due in FY12. We expect refinancing savings,given a fairly high interest cost of 4.8%. We have been highlighting this catalyst for some time though the good rates secured still came in as a slight surprise. Further positives werea slight lengthening of debt maturity. Savings are,however,small at 2% of FY13 DPU, given the small size of the loan (14%of total borrowings).

Meanwhile, we expecttheremaining S$25m to be used for thefunding of an impending rights issue by Hektar REIT. FCT owns 31% ofHektar REIT(trading at consensus forward DPU yields of 7.3%), which recently obtained approval for arights issue to fund the acquisition of two retail assets in Malaysia.

What You Should Do

The overall impact is marginal,given the small size of the loan. Maintain Outperform for FCT’s suburban retail exposure. We see catalysts from stronger-than-expected contributions from Causeway Point’sAEI and Northpoint.