Month: April 2008
FSL – UOBKH
1Q08 DPU in line with expectations; acquisitions to boost future DPU
First Ship Lease Trust (FSLT) has announced its 1QFY08 results. Charter income came in at US$16.6m, accounting for 25.2% of our forecasts, in line with expectations while distributable cash was US$13.0m, accounting for 25.0% of our full year forecasts. Likewise, Distributions Per Unit (DPU) was within expectations at 2.59 US cents, accounting for 24.9% of our full year DPU forecast.
Earnings below expectations: Tripped by depreciation. Earnings for the period came in at US$1.7m accounting for 14.4% of our full year earnings forecasts. This is because depreciation for the period was US$11.2m vs. our estimated US$10.0m. After factoring in the higher depreciation, earnings for the period would have accounted for 25.2% of our FY08 forecasts. FSLT’s depreciation policy is to depreciate the cost of the vessel over the life of the base
lease term to an expected residual value which has not been disclosed. As the residual value for FSLT’s fleet is not disclosed, our estimated depreciation estimate was 10.7% below the actual value.
Acquisition of 2 crude tankers from Geden Lines, Turkey’s largest shipping company. On 21 April, FSLT announced the acquisition of 2 115,000 DWT crude tankers for a total consideration of US$140m. The acquisition prices are in line with recently transacted sales (US$70m for 105,000 DWT). Built by Samsung Heavy Industries, the two vessels are both less than a year old. The two vessels have been concurrently leased back to Greden for a lease term of 10 years. Lease payments are on a floating basis resettling on a quarterly basis in line with changes in the 3-month US$ Libor rate.
Management guidance on DPU accretion seems reasonable. FSLT has guided that the vessel acquisitions will generate an additional 0.16 US Cents for 2QFY08 and an additional DPU of 0.28 US Cents for each full calendar quarter thereafter. Based on the DPU guidance, we estimate the bareboat charter rate at present to be about US$20,000/ day which seems reasonable as it is at a discount to the current three-year timecharter rate of US$28,000 for vessels of this class as reported by Clarksons. The implied asset yield is about 10.0%.
Stable and visible distributions: Maintain BUY. We continue to like FSLT for its stable and visible distributions which are supported by its long bareboat charters which have an average remaining lease term of approximately 8.6 years. With an undrawn credit facility of US$150m, FSLT can continue to fund most of its remaining US$160m acquisition targets with low cost debt. We maintain our BUY recommendation on FSLT and raise our target price to from US$1.22 to US$1.24 (S$1.61) based on a FY09 yield-based target of 9.0%. We have also reduced our earnings forecasts to account for FSLT’s aggressive depreciation policy (FY08: -43%, FY09: -37%, FY10: -37%).
PST – OCBC
DPU hit by a reduced distribution payout
Results in line but… Pacific Shipping Trust (PST) posted 1Q results yesterday and things were generally in line. The first vessel out of the four acquisitions slated for 2008, Kota Nabil, was delivered in March and made its maiden contribution of 21 days of income. Gross revenue from charter income rose 4% to US$8.85m. All other charges were line except for a spike in expenses due to non-recurring charges arising from the four acquisitions. Cash income, the amount available for distribution, rose 9% YoY to US$3.7m, or 1.1 US cents per unit.
…DPU hit by reduced payout. However, PST decided to reduce its distribution payout to 90% – or a DPU of 0.97 US cent, down 7% YoY and 12% QoQ. That works out to a distribution yield of 9.3%, much lower than the other shipping trusts which are trading at over 11% yields. The press release offered a vague and contradictory explanation: On one hand, PST’s board feels that “given current financial market conditions, [it] would be prudent to set aside cash”. In the same breath – and sentence – the board is also saying that the cash is to provide working capital for growth and expansion, not for debt reduction. We note that after completing these four acquisitions, PST’s debt-to-equity ratio will hit 2x or more by yearend. At some point, an equity issue is inevitable.
Is DPU reduction permanent? A lower payout does not have to mean a lower full-year DPU, due to the new acquisitions that are coming in this year. In 2Q, Kota Nabil will make a full quarter’s worth of contribution. The other three vessels will also arrive progressively through the year. Depending on the interest expense on the new vessels, full-year DPU could still be higher than last year’s despite the reduced payout. Additionally, payout going forward is “at least 90%” so the amount retained could fluctuate QoQ.
Reducing fair value. PST’s house is still in order – its fundamentals are going strong, especially as 2008’s four acquisitions start kicking in. But a clear and coherent narrative from PST as to why they reduced payout – and for what – has yet to emerge. This story is still building. For this reason alone, we cut our fair value estimate to 48 US cents, almost 13% lower than our previous estimate. We will revisit our estimates as the narrative builds. Maintain BUY.
FirstREIT – BT
First Reit Q1 DPU increases 15.6% to 1.85 cents
HIGHER rents and contributions from new properties led healthcare-focused First Reit to a 15.8 per cent gain in first-quarter distributable income to $5.1 million.
The performance lifted distribution per unit 15.6 per cent to 1.85 cents, from 1.60 cents in Q1 last year. On an annualised basis, this translates to 7.5 cents or a distribution yield of 10.7 per cent, based on last Friday’s closing price of 70 cents a share.
Ronnie Tan, CEO of the Reit’s manager Bowsprit Capital Corp, said that the results reflect the structure of the Reit, which focuses on long-term stability.
‘Our properties are leased to master lessees for relatively long tenures of 10 and 15 years, with provisions for favourable yearly rental increases,’ he said. ‘This minimises the risk associated with short-term leases and multiple tenants.
‘In addition, the base rent for our Indonesian properties is pegged to a relatively stable Singapore dollar, which helps reduce forex volatility.’
First Reit has eight properties in its portfolio, including three Siloam Hospitals and the Imperial Aryaduta Hotel and Country Club in Indonesia. Between Q2 and Q3 last year, the trust acquired Adam Road Hospital, The Lentor Residence and two nursing homes in Singapore.
For the three months ended March, net property income rose 24 per cent to $7.4 million. Management fees rose 27.2 per cent to $701,000. The trust also incurred $490,000 in finance costs for external borrowings used to fund the Singapore acquisitions.
With a debt-to-property valuation ratio of 15.6 per cent, Dr Tan said that there is ample space to support further growth in assets. The Reit is aiming for a portfolio size of $400 million by the end of this year, from $326 million now. It is eyeing opportunities in China, Indonesia and Malaysia.
Amid expectations of a global economic downturn, Bowsprit Capital remains optimistic that First Reit will continue to perform ‘because of its stable revenues which are based on long-term rental leases’.
Shares of First Reit went up half a cent yesterday to close at 70.5 cents.
CMT – BT
CMT Q1 annualised DPU up 15%
92% of forecast net property income for 2008 locked in, says trust manager
CAPITAMALL Trust (CMT) has announced a distribution per unit (DPU) of 3.48 cents for the first quarter ended March 31.
This represents, on an annualised basis, a DPU of 14 cents – 15 per cent higher than for the previous corresponding period – and a distribution yield of 4.02 per cent based on the unit price of $3.48 on Monday.
Pua Seck Guan, CEO of CMT manager CapitaMall Trust Management Ltd, said: ‘The top-line numbers achieved by CMT remains very strong, supported by robust rental renewals and multiple asset enhancement initiatives.’
While Mr Pua expects organic growth driven by asset enhancement programmes to continue to ‘take centre stage in the coming quarters’, he revealed that as at March 31, over 92 per cent of its forecast net property income for 2008 has already been locked in.
He added: ‘With a gearing of 35.3 per cent, we have a capacity to acquire at least $1.2 billion worth of assets through 100 per cent debt funding, without resulting in a change in our corporate rating of A2 assigned by Moody’s Investors Service. We will continue to actively pursue yield-accretive acquisition opportunities to grow our local target asset size to $8 billion by 2010.’
As at April 21, CMT had an asset size of about $5.9 billion.
CMT’s gross revenue for the first quarter came to $121.1 million, an increase of $3.9 million or 3.4 per cent over its forecast.
Net property income of $84.7 million for the quarter exceeded forecast by 8.2 per cent or $6.4 million. CMT added that IMM and Bugis Junction outperformed forecasts by 11.5 per cent and 15 per cent respectively.
Rental renewal rates for the quarter registered growth of 10.4 per cent over preceding rental rates and 4.3 per cent over forecast rental rates.
For 2008, CMT said that a significant amount of asset enhancement initiatives will be in progress at various malls across its portfolio amounting to some $179.1 million in capital expenditure.
These include on-going works, such as the redevelopment project at Sembawang Shopping Centre, which commenced in Q107 and is expected to be completed by Q408, Lot One Shoppers’ Mall, which commenced in Q307 and is expected to be completed in Q408, and upcoming works such as the redevelopment of Jurong Entertainment Centre, as well as enhancement schemes at Bugis Junction and Plaza Singapura.
CMT said that vacancy voids may have a varying impact on operational costs in the coming quarters in 2008. As such, CMT has retained $5.5 million of its taxable income available for distribution to unitholders for the quarter.
CMT said that the retained taxable income would provide a sustainable pool of funds that would help negate the impact of fluctuating operational cash flows, thereby providing unitholders with stable 2008 quarterly distributions.
At the end of trading yesterday, CMT unit price was up five cents to close at $3.53 per unit.
AREIT – UOBKH
Proposed JTC REIT aborted
Risk of direct competition with JTC REIT averted. JTC announced that it would divest a portfolio of high-rise ready-built properties to Mapletree Investments for a total consideration of S$1.7b. The properties comprise 39 blocks of flatted factories, 12 amenity centres, six stack-up and one ramp-up buildings, three multi-tenanted business park buildings and one warehouse building. Mapletree Investments was previously appointed to establish and manage a proposed JTC REIT, which will acquire these properties from JTC. JTC decided not to proceed with the JTC REIT as its REIT financial advisors, DBS Bank, Goldman Sachs and UBS, have advised that current volatile market conditions are not conducive for a REIT IPO.
We view the aborted JTC REIT positively as it prevents unhealthy competition between two industrial REIT under the ambit of JTC. The transfer of these properties to a private trust sponsored by Mapletree Investments is expected to complete by Jul 08. Mapletree will then explore the possibility to list the portfolio as a REIT, possibly in combination with its other industrial assets. Mapletree could list the assets under a separate REIT or inject the assets into Mapletree Logistics Trust. Both scenarios are more palatable compared to having direct competition with a sister REIT with similar investment mandate.
Positive rental reversion for Science & Business Park and Hi-Tech Industrial space. A-REIT benefits from the shortage of office space within the Central Business District (CBD). This has forced many companies to relocate non-client-facing backroom and data centre operations to suburban locations such as Alexandra Technopark and Changi Business Park (CBP). There is also positive impact from inflow multinational companies expanding in Singapore. AREIT has renewed and signed new leases for total net lettable area (NLA) of 784,925sf during 4QFY08, representing 9.7% of NLA for multi-tenanted buildings. Gross rental rates for these new contracts for Science & Business Parks and Hi-Tech Industrial were S$3.76 and S$3.10psf pm respectively, 68.8% and 49.8% higher on a yoy basis.
Maintain BUY. A-REIT provides FY08 distribution yield of 6.32%, a healthy spread of 3.97% over 10-year Singapore government bond yield at 2.35%. Our target price is S$3.00 based on two-stage dividend discount model.