Full year results were disappointing, although not unexpected. Revenue was up 42.1%, net property income up 31.8%, but DPU fell 5.1%. Revenue increased on the back of full year contributions from acquisitions and the fall in DPU is mainly attributed to higher borrowing cost.

Portfolio size dropped 13%, mainly due to translation losses of the Australian properties and also downward valuation of AWPF wholesale fund, Keypoint building and Cosmo Plaza. NAV thus fell from $1.42 in FY07 to $0.97 in FY08.

Diversification not a good thing in this case. FCOT has a fairly well diversified portfolio with 43% of revenue contributed by Singapore, 40% by Australia and 17% from Japan. However diversification did not work in this case as the Australia dollars depreciated almost 25% relative to the Singapore dollars over the year. Although FCOT has got currency hedges in place, this has not prevented Central Park and Centrelink recording lower revenue in 4Q08. On a QoQ basis, Central Park revenue fell 23% while Centrelink fell 21%.

FCOT has $620 million to refinance this year, $70 million of which comes due in May 2009 and the rest in Dec 2009. In Nov 2008, F&N demonstrated its show of support by extending a loan of $70 million to FCOT at an interest rate of 3.73%. With its sponsor support, short term financing is not a problem for FCOT. The real test is towards the end of the year where the refinancing quantum is much higher.

We think DPU erosion. We do not think DPU is going to get any respite in the near term. We factor in lower contributions from Australia and also make an allowance for higher tenant vacancies. Another dilution to DPU is the issuance of management fees in units. Approximately 29 million units were issue in lieu of management fee for FY08 versus 8.3 million units in FY07. If share price continues to remain depressed, we project a further 45 million units will be payable for FY09 and DPU will thus be further diluted. We do not rule out an equity fund raising either as gearing is currently at a high of 57%.

Valuation. We have revised down our gross revenue estimates for FY09F and FY10F by 12% and 13% respectively, mostly to factor in higher vacancies and forex income losses. Our DPU estimates are 4.47cents and 4.35cents. We feel risk-reward is tilted towards the former and downgrade our call from Hold to Sell. Fair value is lowered from $0.21 to $0.14.