FCOT – Phillip

2QFY10 Results

• 2Q10 revenue of $29.8 million, net property income of $23.6 million, distributable income available to unitholders of $9.8 million.

• 1Q10 DPU of 0.32 cents.

• Maintain Buy, fair value $0.18

Things have stabilized

FCOT recorded 2Q10 revenue of $29.8 million (+24.3% y-y, +0.4% q-q), net property income of $23.6 million (+26.5% y-y, +0.5% q-q) and distributable income available to unitholders of $9.8 million (+81.6% y-y, +33.0% q-q). 1Q10 DPU was 0.32 cents (-55.6% y-y, +33.3% q-q). The y-y better performance is mainly due to the revenue contribution from Alexander Technopark as well as the favourable AUD exchange rate. As can be seen from the q-q results, 2Q10 results have stabilized from 1Q10 (Fig 1 and Fig 2). Revenue contribution from Singapore, Australia and Japan are 51%, 35% and 14% respectively.

Average portfolio occupancy rate is 92.4%. Occupancy for the Singapore and Australia properties remained high at 95.2% and 96.3% respectively. The strong occupancies are backed by master leases. 36.3% of revenue is backed by master leases of Alexandra Technopark and China Square Central. Whereas for Australia, 27.5% of total revenue includes blue chip tenants with long leases. The single biggest is the Centrelink property at 9.5% with a long term lease expiry at 2025. The Japan properties average occupancy rate was 74.2%, effectively adversely affected by the Cosmo Plaza master lease tenant who is in financial difficulty. Effective occupancy of the building is only 23.2%. FCOT has already classified Cosmo Plaza as a divestment asset and will be looking to sell the asset. The portfolio weighted average lease expiry (WALE) is 4.2 years

Capital management

FCOT has no near term refinancing needs. It has total debt of $829.7 million which is due in 2012. Gearing is at 40.1%.

Forecasts

We hold our view that FCOT is still on the rebuilding process. We think the injection of Alexandra Technopark was a prudent decision and it has proven to be so, having a stabilizing effect on total revenue. The overseas properties have also fared respectably, especially the Australia properties, with long WALE and high occupancies. Coupled with the rebound in the AUD dollar, contributions to total revenue are strong. The Japan properties continue to be a drag on the portfolio, stemmed mainly from Cosmo Plaza. Our main concern now is on how soon FCOT managed to divest Cosmo Plaza and also the AWPF investment, since these are not contributing effectively to the revenue. It would be a plus to use the divestment proceeds to pare down debts, therefore lowering gearing and we think that would be a re-rating catalyst. Maintain our buy recommendation and fair value of $0.18.