Portfolio performance. Revenue in 2Q09 came off 17.9% from a year ago. We can also observe the trend of revenue. It can be observed that much of the decline came from the Australian properties. From 1Q08, Australia contribution dropped 24.7%, Singapore contribution dropped 17.8% and Japan contribution dropped 14.5%. The main reasons for the dismal performance from Australia were due to the termination of income support of Central Park in 3Q08 and also the unfavorable foreign exchange movement of the AUD. For Singapore, contribution was affected in 2Q09 due to the cessation of income support of Key Point in 2Q09. Japan contribution was affected in 2Q09 because of underperformance of Cosmo Plaza. Revenue contribution by percentage for 2Q09 is 42.8% (Singapore), 40.6% (Australia) and 16.6% (Japan).
After the recapitalization, gearing will be reduced to 38.5%. NAV per share is diluted to approximately $0.26. $179 million from the rights issue will be used to repay existing debt. The remaining balance of debt will be refinanced with two new facilities for a further 3 years. Total debt after refinancing is approximately $804 million.
Valuation and recommendation. The recapitalization exercise has shown the commitment of a strong sponsor backing FCOT in rebuilding its balance sheet. We expect to see a stabilization of revenue from the portfolio. The addition of Alexandra Technopark, which is under a master lease, will provide a stable rental income to FCOT. Together will China Square Central, gross rental income under master leases is approximately 38%. We revise our assumptions to account for the recapitalization and also make changes to our revenue forecasts. We forecast FY09F DPU to be 2.3 cents and following full dilution in FY10F, DPU falls to 1.2 cents. We believe the transformation of FCOT undertaken by the management will take time to crystallize.
The first phase of transformation is now completed. The second phase would be the rebalancing of the investment portfolio and we think the management team has the experience and expertise to execute their stated strategy. Our post-rights fair value is $0.125. At the previous day closing price of $0.195, we think market has not factor in the dilution due to the rights units. Maintain sell recommendation.
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