Singapore REITs

ACQUIRES 50% INTEREST IN CAROLINE CHISHOLM CENTRE

•12.6% discount to valuation

•Accretive to DPU

•Enhance lease expiry profile and stability

Details of acquisition

Frasers Commercial Trust (FCOT) yesterday announced the proposed acquisition of the remaining 50% interest in Caroline Chisholm Centre (CTL) for AUD83.0m (S$112.6m). The purchase consideration was at a 12.6% discount to the last valuation of AUD95.0m (S$121.3m) of its existing 50% stake in the property, carried out on 30 Sep 2011. Management intends to finance the acquisition via bank borrowings and internal funds.

Benefits likely from investment

We are positive on the acquisition as CTL is fully leased to the Commonwealth Government of Australia, represented by Centrelink, with a balance lease of ~13.5 years and 3.0% annual rent increment. This will likely enhance FCOT’s portfolio lease expiry profile and provide stability in income growth. According to management, the portfolio weighted average lease to expiry is expected to improve from 3.4 years (31 Dec 2011) to 4.4 years, while the percentage income from master leases and blue-chip tenants is likely to increase from 43.1% to 48.3%. We also believe the move will give FCOT greater control and flexibility as the group will own the entire property upon completion of the transaction.

Maintain BUY

Based on FY11 NPI of AUD8.5m (S$10.9m) and valuation of FCOT’s present interest in CTL, we note that NPI yield of the property was at 8.9%. This compares favorably to the FY11 implied portfolio NPI yield of 4.9%. Assuming the acquisition was financed by bank borrowings and internal funds, management guided that it is expected to add 0.32 S cents or 5.6% to its DPU. In our view, FCOT appears poised to produce a good set of performance in the current financial year, given the better expected rental terms on China Square Central, potential interest savings from refinancing and current investment. Our DDM based fair value is now lifted to S$0.94 from S$0.87 previously, after factoring in the acquisition. Maintain BUY on FCOT.

Rickmers keeps Q4 DPU at 0.6 US cts

RICKMERS Maritime reported distribution per unit for the fourth quarter ended Dec 31, 2011 of 0.60 US cents, unchanged from the year-ago period.

The shipping trust’s full-year DPU comes up to 2.4 US cents, which marks a 4 per cent increase from 2010′s 2.31 US cents.

Q4 cash flow available for distribution – before payment to debtors – for the final quarter was down 13 per cent from the previous year to US$25.8 million from US$29.7 million

For the full-year, cash flow for distribution before debt repayment was US$107.3 million, a 6 per cent decline from FY2010′s US$114.3 million.

Rickmers recorded US$11.3 million of net profit for the last quarter of fiscal 2011, 43 per cent down from the preceding year-ago quarter’s $20 million, which included a US$7.3 million vessel impairment writeback.

It also managed to reverse its 2010 losses to end the year firmly in the black, with $40.3 million net profits compared to 2010′s $28.6 million loss, which took into consideration a US$64 million compensation fee to discharge the group from its obligation to purchase seven vessels.

Rickmers managed to bump up its fourth-quarter and full-year revenue by 3 per cent and 2 per cent, respectively, to $37.8 million and $149.5 million. This was thanks to a higher daily charter rate of US$23,888 for its box ship Kaethe C Rickmers, in effect since March 25, 2011, from the previous rate of US$8,288.

However, Rickmers management warned that as the vessel finishes its one-year charter contract and is redelivered in a few weeks’ time, it may not find immediate re-employment.

And even if it does, said CEO of Rickmers Maritime’s trustee-manager, Thomas Preben Hansen, Kaethe C Rickmers’ secured charter rate would be far lower than in its previous outing.

That said, Rickmers’ 15 other container vessels are on long-term leases stretching until 2019, with average daily charter rates of US$26,120 in 2012. These agreements will fetch the trust US$615 million of secured revenue between Jan 1, 2012 till 2019.

Given the collapse of charter rates which have resulted in some charterer defaults in the dry bulk vessel segment, Mr Hansen said that the same has not yet been seen in the container vessel segment.

‘I don’t foresee the same degree of default and reneging that has been happening in dry bulk sector (in the container shipping market),’ he said, explaining that the bulk carrier market has far more smaller operators than container shipping.

Mr Hansen said that Rickmers has no plans to buy new vessels.

Rickmers Maritime was last traded at 31 cents.

4Q11 RESULTS ROUNDUP

•Results within expectations

•Performance likely to remain stable

•Sound fundamentals remain intact

Healthy quarterly results.

Industrial REITs continued to turn in encouraging sets of results for the financial quarter ended Dec 2011, in line with our expectations. Robust YoY growths of 4.3-14.4% in NPI and distributable income were registered across the REITs, driven by acquisitions, completion of development projects and positive rental reversions. On a QoQ basis, we observe that the REITs also delivered modest growth in their DPUs, as they continued to benefit from better operating performances and contributions from their recent acquisitions.

Expecting stable performance.

Going forward, we believe industrial REITs are likely to maintain their financial performances. While the uncertain global economic outlook and seventh consecutive monthly contraction in the manufacturing sector have likely caused industrial REITs to set more cautious tone on their outlook, we note that all the REITs have already been taking proactive measures to limit any negative impact from a potential market downturn.

Financial position still healthy.

A look at the industrial REITs’ operating performances also shows that their portfolios are still healthy thus far. As at 31 Dec 2011, the aggregate leverage for the industrial REIT subsector averaged at 34.6%, up by a slight 1.9ppt QoQ. However, industrial REITs are in a markedly better financial position now, in our view. Average subsector interest cover was maintained at a strong 6.3x, while borrowing cost of 3.1% was lower than the rates seen during the credit crunch.

Maintain OVERWEIGHT view.

For 2012, we note that only an estimated low S$276.6m (4.5%) of the industrial REIT subsector borrowings are due to expire. This translates to limited refinancing risks for the REITs. We are maintaining our OVERWEIGHT view on the industrial REIT subsector, as we believe fundamentals are still sound and financial performances are expected to stay resilient. CACHE remains our preferred pick, due to its relatively more robust portfolio, healthy aggregate leverage and attractive FY12F DPU yield of 8.9%.

Defaulting lessees to impact NTA of FSL Trust

First Ship Lease Trust on Tuesday said that it has issued written notice to the three lessees of three chemical tankers who have defaulted on their lease payments under their respective lease agreements in February.

First Ship has demanded payment to be made no later than March 8.

The vessels, Pertiwi, Prita Dewi and Pujawati, were leased to wholly-owned subsidiaries of PT Berlian Laju Tanker Tbk (BLT).

Each lessee is obliged to pay the relevant charter hire due under the relevant lease agreement on the first day of each calendar month, and the obligations of the lessees under the lease agreements are guaranteed by BLT.

The lessees' contribution to FSL Trust's total revenue for FY2011 was 12.8 per cent and the default would have a material impact on the net tangible assets (NTA) per unit of FSL Trust.

Based on the financial statements announced for the year ended December 31, 2011, the NTA per unit is expected to decrease by US$0.03 from US$0.53 to US$0.50.

However, the default will not cause First Ship to be unable to continue to servie the debt obligations under its loan agreement.

Cambridge Industrial Trust 4Q11 Results Review

Full year results in-line with expectations. Cambridge Industrial Trust (CIT) released its FY11 results posting a gross revenue and distributable income of S$80.4m (+8.3% YoY) and S$50.4m (+12.7% YoY) respectively. NPI rose 6.2% to $69.1m on the back of higher rental income. DPU for the 4th quarter was reported to be 1.118 S¢ (+3.3% QoQ) bringing the entire year’s DPU to 4.237 S¢ (-13.4% YoY). The drop in DPU was mainly due to the enlargement of share base as a result of April 2011 rights issue. Separately, by completing the acquisition of 3C Toh Guan Road East, we expect the property to contribute c.0.15S¢ to FY12 DPU. Concurrently, by divesting 7 Ubi Close, CIT is able to put the acquired capital to better future investments. We maintain our BUY call with a DDM-based TP S$0.605, which posts a potential upside of c.20%.

Divestment of 7 Ubi Close. As part of the company’s efforts to recycle its capital for future investment opportunities, CIT has completed its divestment of 7 Ubi Close at S$18.7m. This price is a 2.2% premium to the latest valuation of S$18.3m as at 31st Dec 2011.We view this divestment positively as this is the only property in CIT’s portfolio which land lease is due to expire in less than 15 years.

Newly completed acquisition to begin contribution in 2Q12. CIT completed the acquisition of 3C Toh Guan Road East at S$35.5m on 30th Jan 2012. This industrial building adds another 192,864 sq ft of GFA to CIT’s portfolio and is currently leased to an anchor tenant for 3 years with an option to renew for a further 3 years. We expect this newly acquired property to contribute 0.15 S¢ to FY12 DPU.

Positive views on DPU growth in FY12. We view these results and new growth strategies positively and maintain our BUY call with a TP of S$0.605. Although CIT’s FY11 DPU has fallen by 13.4% YoY, the contribution from properties previously acquired together with these new strategies should allow CIT’s DPU to pick up in FY12.