FCOT – CIMB

Refinancing savings round 2

Secured rates for FCOT’s SGD loan (overall margin savings of 100bps) met our expectations. We expect a partial repayment eventually when unit holders approve the sale of KeyPoint and when management finalises the best use for the sales proceeds.

We keep our DPUs and DDM-based target price (discount rate: 9.1%) unchanged. Our estimates assume the use of KeyPoint divestment proceeds for 50% redemption of its CPPUs and part-repayment of loans. Maintain Outperform on catalysts from more accretive capital deployment.

What Happened

FCOT has announced that it has entered into agreements for a S$320m three-year loan and a S$185m five-year loan to refinance its S$500m SGD term loan facility. Interest rates for the loans are at SOR plus margins of 1.55% and 1.83% respectively from the date of first drawdown. The loans are secured over China Square Central, 55 Market Street and Alexandra Technopark.

What We Think

Loans are secured at an overall margin of 165bps over SOR, a 100bps saving from the previous borrowing spread of 265bps. This is fairly in-line with our expectations. While FCOT has entered into agreements for a collective S$505m in borrowings for refinancing, we expect a partial repayment eventually when unit holders approve the sale of KeyPoint during the EGM on 12 Jul 2012and management finalises the best use of the sales proceeds. Management had raised the possibility of a partial CPPU redemption, partial loan repayment, and share buyback in its circular dated 18 Jun. We understand that management had entered into the facilities to ensure flexibility in the use of KeyPoint sales proceeds and there are no major penalties for early repayment.

What You Should Do

We keep our DPUs and DDM-based target price unchanged with refinancing rates fairly in-line with our expectations. Our estimates assume the use of KeyPoint divestment proceeds for 50% redemption of its CPPUs and part-repayment of loans. Maintain Outperform on catalysts from more accretive capital deployment.