FCOT – CS

1Q09 results: below expectations; refinancing to conclude soon

● 1Q09 revenue and NPI were in line with our and consensus fullyear forecasts, while DPU was below our below-consensus forecast, due mainly to higher-than-expected trust expenses (legal and professional fees) and a S$0.5 mn realised loss on AUD forward contract undertaken to manage forex income exposure.

● Management further revalued downwards its portfolio of nine properties by 7.8% to S$1.53 bn to reflect deteriorating conditions. Gearing has risen from 54.4% to 58.3%, while interest coverage fell to 1.8x from 2.2x, though still meeting existing debt covenants.

● We expect management to conclude refinancing of its S$620 mn debt due this year soon, while balance sheet strengthening may require some equity fund raising or convertible preference issue.

● We cut FY09E income 2% on higher trust expenses, but raise FY10-11E income 3% from lower management fees on lower asset revaluations, and DDM-based target price to 18cts (from 16cts). While attractive at 20% FY09E yield and 0.2x P/B, we expect DPU to decline 46% to trough on falling rents and rising financing costs.

Results reflect weak conditions, loss of income support
Revenues fell 16% YoY to S$4.4 mn due mainly to the loss/reduction of income support at Central Park and KeyPoint, weakening of the AUD, partially offset by a stronger JPY. Occupancy fell to 88.9% from 94.6% mainly on the removal of the master lessee, who is in trouble at its Cosmo Plaza, Osaka and lower occupancy at KeyPoint. Financing costs rose 36% to S$13.2 mn increased debt margins under May 2008 debt extension.

Portfolio updates: first right of refusal on Canberra asset
Receivers and administrators have been appointed to the assets of Record Realty Trust (RRT), who is the other 50% joint owner to FCOT’s 50%-owned S$91 mn Canberra asset, Caroline Chisholm Centre (CCC). FCOT has the right of first refusal should they dispose of RRT’s indirect interest in CCC.

FCOT continues to explore divesting its stakes in Cosmo Plaza, Osaka and its 20.6% stake in Australian Wholesale Property Fund (AWPF). Cosmo Plaza saw occupancy fall to 23% due to master lessee, Restoration Asset KK surrendering the space and only 30% of the space has been re-leased.