FCOT

FCOT: OCBC understands that FCOT has been granted a provisional permission (PP) by URA for the proposed additions and alterations to the existing commercial development at China Square Central and erection of a new hotel block on 18 Cross Street earlier this week. The terms and conditions include an additional 16,000 sqm GFA for hotel use, which is equivalent to the PP first granted in Jun 2008 (already lapsed). According to the 2008 announcement, the space could potentially accommodate a 10-storey hotel tower of ~350 rooms. While FCOT highlighted that it is still in the preliminary stage of exploring all options with regard to the property, the house believes FCOT may possibly divest the hotel space or capitalize on its sponsor’s capabilities to develop the hotel. Either way, OCBC is positive on the news as FCOT could use the proceeds from a sale to pare down its aggregate leverage or enhance its growth profile through the development (although FCOT has an estimated development capacity restriction of ~$185m and an equity fund raising may be necessary). OCBC continues to like FCOT for its growth potential, proactive management approach and compelling P/B of 0.97x. Maintains BUY with revised TP of $1.60 ($1.66 previously).