All in one. FCOT is proposing a recapitalization package involving a S$213.9m 3-for-1 rights issue to largely pare debt, refinancing up to S$675m loans and acquisition of Alexandra Technopark to be funded using convertible perpetual preferred units and backed by a 5-year master lease agreement. The end result of a much lower gearing of 38.5% and an improved interest cover of 2.7x, both which are well within covenant limits, would put the reit on a much stronger financial footing.

Purchase of ATP a stabilizing factor. Furthermore, the acquisition of Alexandra Technopark is earnings accretive and will result in greater income stability and lower forex exposure for FCOT. The reit¨s portfolio will be more Singapore-centric with 59% of assets situated locally while strong underlying master leases will mean that 74% and 65% of gross rental income at the start of FY11 and FY12 are secured, leading to better income visibility.

Near term DPU dilution but stock valuations already pricing in implied distressed prices. We estimate FCOT¨s FY09-10F DPU to be diluted by 35-64% to 2.2cts and 1.2cts and book NAV lowered 60% to $0.26. We believe investors should look beyond the near term DPU dilution to the underlying value of the reit. The TERP of $0.131, calculated based on the last closing price on the date of announcement, is at 0.50x P/adjusted book NAV and implies distressed valuation pricing to the underlying asset value. Our TP of $0.12 is based on discounting income from existing properties, which are supported by inbuilt organic rental growth structures and adjusted for the rights issue but before CPPU conversion. In the longer run, potential rationalization of the Japanese properties and value enhancement possibilities of the Singapore assets due to their proximity to new MRT stations of the upcoming Circle Line would create further value within the portfolio.