Month: February 2008
PLife – DBS
Even more headroom now
Comment on Results
ParkwayLife REIT’s (PREIT) FY07 results were in line with our expectations. Gross revenues ended at S$16.9m as a result of higher variable rent component that is linked to the Adjusted Hospital’s Revenue. This was partially offset by higher property expenses as a result of more contributions to the management and sinking fund for Mount Elizabeth Hospital (MEH). DPU for FY07 was 2.27 Scts, annualized at 6.32 Scts.
There was a revaluation gain of S$56.3m on its investment properties, mainly contributed by MEH (+S$47.3m). This increased its NAV per unit to S$1.36, from S$1.25 as of listing.
Recommendation
PREIT also announced that it has received an investment grade rating of “BBB+” by Fitch Ratings. With the rating, it will allow PREIT to increase its aggregate leverage limit to a maximum of 60% of the value of its deposited property, from its previous capped gearing of 35%. While management indicated that a comfortable long-term gearing target is probably around 45%, the rating and revaluation gain allows PREIT to take up a maximum of about S$1.1bn of debt (at 60% gearing). Its current low gearing of 4% provides substantial flexibility to pursue its growth and acquisition strategy.
Management also indicated that any asset injection from its Sponsor would be done as a business case and evaluated on its investment and financial merits to the REIT.
Maintain BUY, TP: S$1.50. The prospects of the Group should remain firm on an aging population, increasing life expectancy, growing affluence, and Singapore’s drive to promote medical tourism. In addition, downsides are protected from gross revenues pegged to the higher of Adjusted Hospital’s revenue or [1+(1%+CPI)] on the total rent payable on the immediate preceding year. Maintain BUY, TP unchanged at S$1.50 based on DCF (WACC 5.6%, terminal growth 1%). Counter is currently trading at 11% discount to NAV and offers a forward yield of 5.4% (FY08F).
PLife – UOBKH
FY07: Maiden results exceeded forecast
Parkway Life REIT reported its maiden set of results for the period from 23 Aug to 31 Dec 08.
Parkway Life REIT achieved rental revenue of S$16.9m, 5% higher than forecast provided in the IPO prospectus. This comprises base rent of S$10.7m and variable rent of S$6.2m. Higher variable rent was driven by increased revenue from foreign patients, higher consumption of diagnostic outpatient services and contribution from Parkway Cancer Centre.
Distributable income was 5.8% higher than forecast at S$13.6m. Parkway Life REIT declared DPU of 2.27 cents, representing annualised distribution yield of 5.3%. The distribution will be paid on 28 Mar 08.
Revaluation boosted NAV/share. Parkway Life REIT has revalued its portfolio from S$775.3m at 17 Jul 07 to S$831.6m at S$831.6m at 31 Dec 07. This is an increase of S$56.3m or 7.3%. The appraised value for hospitals are based on discounted cash flow while the appraised value for medical centre units at Mount Elizabeth Medical Centre (S$5.7m per medical centre unit) and Gleneagles Medical Centre (S$2.5m per medical centre unit) are based caveats lodged. NAV/share for Parkway Life REIT has therefore increase by 8.8% to S$1.36.
Investment grade rating from Fitch boost debt capacity. Parkway Life REIT will pursue yield accretive acquisitions focusing on Singapore, Malaysia, Thailand, India and China. The company has received investment grade rating of BBB+ from Fitch Rating on 19 Feb 08. Its maximum permissible gearing has increased from 35% to 60%. Additional debt capacity to fund acquisition has increased from S$410m to S$1,200m.
Parkway Life REIT will diversify in terms of asset type. It will seek investments in ambulatory surgery centres, primary clinics, medical office building, step-down care facilities such as nursing homes, research & development (R&D) facilities and pharmaceutical storage and distribution facilities. Parkway Life REIT targets to targets to double size of portfolio to S$1.6b by end-09.
Reiterate BUY. Parkway Life REIT provides strong defensive qualities. It benefits from revenue growth at Mount Elizabeth Hospital, Gleneagles Hospital and East Shore Hospital as variable rent is 3.8% of adjusted hospital revenue. Our target price is S$1.72 based on the discounted dividend model (discount rate: 7.1%, terminal growth: 3%).
Rickmers – UOBKH
4Q07 Distributions in line with management guidance
Rickmers Maritime (RMT) announced net profit of US$20.6m for FY07. This was 25% higher than what we had forecasted due mainly to higher negative goodwill on business combination and amortization of unfavourable charter rates (US$9.148m vs. US$6.116m) than what we had provided for. Bear in mind that these two items are accounting items and non-cash items and have no impact on distributable cash. Charter income for the period was about 1.2% higher than our forecasts mainly due to early delivery of two vessels in Dec 2007.
Distributable Cash Per Unit higher on early vessel deliveries. Distributable Cash Per Unit (DCPU) for the period came in at 6.5 US cents about 2% higher than what we had forecasted. This can be attributable to slightly higher charter income due to the early delivery of two vessels in December 2007. Distribution Per Unit (DPU) announced for FY07 was 5.64 US cents, in line with management’s guidance, but slightly lower than our expectations of 5.77 US cents as management has retained a larger portion for future acquisitions. For 4Q07, DPU paid will be 2.14 US cents and will be paid out on 27 March 2008. RMT units will trade ex-Distribution on 12 March 2008.
Maintain BUY: Target price unchanged at US$1.19 (S$1.68). We believe that the sell down in RMT’s shares is unjustified given the defensive nature of the earnings and distributions, due to its vessels being chartered out on long term fixed timecharters, with an average duration of nine years. Furthermore, RMT focuses on only the top liner companies in the world and its customers include Maersk Lines, CMA CGM, Italia Marittima, Hanjin Shipping and Mitsuit O.S.K. Lines. The shipping trusts in the US have rebounded following the fall in global equities in Nov 07 and are currently trading at distributions yields of about 6.0 to 6.5%. RMT is currently trading at an attractive distribution yield of 12.2%. We reiterate our BUY recommendation on RMT, with a target price of US$1.19 (S$1.68).
MMP
Macquarie Supports Strategic Review of Macquarie MEAG Prime REIT
Macquarie Real Estate Singapore (MRES) advised today it supported the decision of the Board of Macquarie Pacific Star Prime REIT Management Limited (the Manager of Macquarie MEAG Prime REIT (MMP) (SGX: MMPR.SI)) to conduct a review of strategic options with the specific objective of enhancing value for all MMP Reit unitholders.
MRES is a substantial unitholder of the REIT with a 26 per cent holding. Another Macquarie Group entity has an indirect 50 per cent interest in the REIT’s Manager.
MRES supports the Board’s decision to undertake the strategic review because it has received a number of offers for its 26 per cent interest in MMP REIT units, and in the interests of all MMP unitholders, would like for all unitholders to be able to participate in any proposal on the same basis as Macquarie.
While MRES has made no final decision in relation to its stake in MMP as this is dependent on the outcome of the strategic review, it is committed to seeking to find ways to provide all MMP unitholders with access to value-maximising proposals.
FSL – OCBC
Quasi-debt instrument with attractive yields
Basic attraction is distribution yield. First Ship Lease Trust (FSLT) is a listed shipping trust. Its shipping income is tax-exempt and distributions are also tax-exempt for all investors. Based on its existing assets, FSLT offers an annual distribution of 10.332 US cents for FY08. With its current price at S$1.13, this amounts to a whopping yield of 12.9%. In comparison, the Singapore 10-yr government bond yields 2.3%.
Distribution payout not just return on asset. Part of FSLT’s high distribution payout consists of a return on the unit-holders’ invested capital. Vessels are depreciating assets and FSLT fully pays this amount out every year. So while the payout is high, the value of assets has declined correspondingly. FSLT also pays out the depreciation charge (or part of the principal) on its leveraged assets. This is similar to the return of unitholders’ capital, except that FSLT is paying out the debt principal to unit-holders. This boosts payout in the earlier years, but ultimately unitholders have to repay debtors in the later years.
Acquisition plans. FSLT is targeting US$300m worth of acquisitions every year. It is aiming for an average asset yield of 10.5% and a target IRR of about 7.5%. There is no regulatory ceiling on its gearing, and FSLT’s longterm debt-to-equity target is 1x. Since listing, it has made about US$158m worth of debt-funded and DPU accretive acquisitions. We believe that once FSLT hits the 1x debt-to-equity target, it would look to raise new equity – which based on its yearly US$300m target could be as early as 2009.
Initiate coverage with BUY rating. Our DCF valuation only looks at the value of the unitholders’ stake in the trust – that is, the remaining value after repayment of debts. Our valuation assumes another US$330m worth of acquisitions over FY08-09 based on debt-to-equity of 1x. Using above, our DCF value is S$1.25, or a 10.6% upside from the current price. This assumes that the investor sticks with FSLT until the end, when all debts would have to be repaid (we estimated 2015 but FSLT plans to refinance as and when its facilities mature). However, for the next 1-2 years, we acknowledge that FSLT offers much higher returns based on the estimated DPU from its existing assets and its intention to continue making various DPU accretive acquisitions. We are initiating coverage on FSLT with a BUY rating.