Month: November 2008
PLife – DBS
On long term financing post 3Q
Comment on Results
3Q08 results within expectations. Net property income ended at S$12.47m with gross revenue at S$13.35m. While property expense to gross revenue for its Singapore Portfolio reduced by 1% from 1Q08 to 3Q08, the REIT’s overall net property margins decreased slightly to 93.4% (from 93.6% in 1Q08) due to its Japanese properties. 9M NPI now forms 73.6% of our full year forecasts. A DPU of 1.71 cents was announced and to be paid on 5 Dec (book closure – 12 Nov).
Refinanced all short-term debt pursuant to 3Q. As of 3Q08, PREIT still has short-term debt of S$201.9m in its balance sheet. However, pursuant to that, management has replaced all its S$201.9m shortterm facilities into 3-year long-term facilities, which has been committed and drawn down in Oct/Nov. Weighted average costs of funds for PREIT stands at around 2.85%. They have also entered into a interest rate swap to secure 100% interest rate fixing and a long term 5 year JPY/SGD forward contract to hedge 100% of net cash flow from its Japanese investments.
Recommendation
On track to meet our FY08F forecasts. On 9 Oct, it was announced that its Singapore Hospital minimum rental rate based on the 1%+CPI formula will be revised upward by 6.25% for the period from 23 Aug 08 to 22 Aug 09. In 4Q, with a higher minimum guaranteed rental for its Singapore hospitals and full contribution from its 7 recently acquired Japanese nursing homes, we expect PREIT to meet our FY08F forecasts and DPU estimates of 6.8cents.
Maintain Buy, TP: S$1.19. We adjust our TP slightly to S$1.19, based on DCF as we factor in a higher WACC (WACC 6.7%, terminal growth 1%) as a result of a higher adjusted beta – due to recent increased share price volatility. We view PREIT as a defensive counter, providing stable gross rental revenue due to its Singapore hospital rental structure (higher of hospital revenue or 1%+CPI%), replacement of short-term debt by longer-term facilities, and the relatively resilient healthcare sector. At current price, dividend yield stands at around 9.0% and 9.7% for FY08F and FY09F.
PLife – BT
P-Reit remains optimistic on outlook
AMID challenging market conditions, the manager of Parkway Life Reit (P-Reit) remains optimistic about its outlook and has already repositioned its finances so that it can be more flexible.
The healthcare property trust yesterday reported a third-quarter income available for distribution of $10.3 million, boosted by higher rental rates and income from recently acquired properties.
The performance brings the distribution per unit (DPU) for the three months ended September to 1.71 cents, or 0.15 cents higher than its earlier forecast of 1.56 cents.
In the same quarter last year, income available for distribution was $4.1 million. The huge disparity was because the healthcare property trust was only listed midway through Q3 last year.
‘Despite challenging market conditions, we remain optimistic about our medium and long-term prospects,’ said Justine Wingrove, CEO of Parkway Trust Management, the Reit’s manager. ‘This is due to several factors, namely, our rental lease structures that protect against downside risk while providing for good future rental growth, our low gearing, a 100 per cent occupancy across the portfolio and investment grade credit rating of BBB+.’
P-Reit, which holds the Mount Elizabeth, Gleneagles and East Shore hospitals in its Singapore portfolio, posted gross revenue of $13.3 million. It was higher than the forecast of $11.5 million due to a variable rent component pegged to the Consumer Price Index (CPI) which pushed up the minimum rental rates. After subtracting expenses of $877,000, the net property income came to about $12.5 million.
Contribution from its Japan portfolio, including nursing homes and pharmaceutical facilities, came to $1.1 million.
The quarter also saw the mainboard-listed trust diversify its credit facilities. It entered into three-year facilities worth $100.6 million in September. The facility was fully drawn last month to partially refinance short-term debt. A separate three-year revolving credit facility of $100 million has also been secured.
‘By replacing short-term credit facilities with longer term facilities, P-Reit faces no refinancing risk,’ explained Ms Wingrove. ‘In terms of future growth, adequate and diversified financing sources that have been secured will also provide us with the flexibility and acquisitive power to support our future expansion.’
P-Reit also has in place a $500 million multi-currency medium-term note programme, which may be used to fund future acquisitions. Its gearing stands at 19.7 per cent.
The trust has an asset portfolio of $1 billion. For the first nine months of this year, total distributable income came to $30.1 million, on the back of $37.7 million in gross revenue. DPU so far is five cents.
Shares of P-Reit slipped two cents yesterday to close at 76 cents.
PLife – CIMB
There’s money in the bag
• Performance on track. 3Q08 results were in line with Street and our expectations. DPU of 1.71cts forms 26% of our forecast of 6.57cts for FY08. Gross revenue of S$13.3m was up 6.9% qoq on contributions from Japanese assets acquired earlier in the year. YTD DPU of 5.0cts forms 76.1% of our full-year estimate, in line.
• Borrowings refinanced on 3-year terms, cost of debt fixed. In October, management secured S$200.6m from two 3-year loan facilities that would fully refinance 99% of its total debt of S$202m previously drawn on short-term facilities. The all-in cost of debt of 2.85% is hedged for three years. Over and above current borrowings, management has in place more than S$100m of long-term facilities and S$250m of short-term facilities that could provide ammunition for potential acquisitions, when opportunities arise. Separately, net cash contributions from the Japanese assets are hedged for five years, mitigating risks of forex fluctuations.
• Changes in assumptions. As 99% of the total debt has been fixed for three years, we see limited risk for interest costs and lower our cost of debt assumption to 3.2% (from 4%) for FY09 onwards. YTD, PLife has fulfilled 70% of our acquisition forecast of S$250m for FY08. Although the company has in place funds to fulfil our acquisition target for the year, we take a conservative view and remove our acquisition assumptions for FY08-09.
• Maintain Outperform; lowered target price to S$1.30 from S$1.46. Our DPU estimates for FY08-9 increase by 9-12% on lower interest-rate assumptions, while FY10 estimate declines by 12% on the removal of acquisition assumptions. Our DDM-derived target price (discount rate 8.1%) drops to S$1.30 from S$1.46. It is laudable that management had been able to secure long-term facilities at a low cost of debt particularly on an unsecured basis. We continue to like PLife for its attractive forward yields of more than 10% with limited downside risk to earnings. Maintain Outperform.
FCOT – Westcomb
- Fraser Commercial Trust (FCOT) announced 3Q08 distribution per units (DPU) of 1.11 SG cents, a 30.2% YoY decrease from 1.59 SG cents in 3Q07. DPU dived 53.8% QoQ from 2.40 SG cents in 2Q08. 3Q08 DPU represented an annualized yield of about 16.3% base on last closing price of S$0.27 on 03 November 2008.
- Gross revenue was 40.9% higher at S$26.6m in 3Q08 while net property income was about 30.0% higher at S$20.0m. Consequently, income available for distribution declined by about 27.3% to S$8.1m in 3Q08. This was mainly due to a 172% surge in finance cost from S$4.0m to S$11.0m. FCOT noted that 3Q08 felt the full quarter effect of additional borrowings utilized to fund the acquisition of Cosmo Plaza, Galleria Otemae, Azabu Aco, Ebara Techno-Serve and KeyPoint. The margins on the Loan Note Facility have increased in 3Q08 under the terms of its extension. Current average borrowing cost stood at about 3.6% and FCOT expects it to increase to approximately 4.3% in Jan 2009 should prevailing floating rates remain.
- FCOT has a debt-to-asset ratio of about 48.6% with about S$473.1 million (representing 52.4%) of debt due to mature within the next 12 months. FCOT achieved overall portfolio occupancy at about 94.5% with weighted average lease expiry of 4 years.
Rickmers – OCBC
Steady 3Q
Steady 3Q. Rickmers Maritime (RMT) posted US$26.5m in 3Q revenue, up 97% YoY and 12% QoQ thanks to a steady stream of vessel acquisitions since its May 2007 IPO. The trust will distribute 2.25 US cents for the quarter. We note that the expected delivery dates for three more MOL vessels on order have been pushed back slightly and we have adjusted our earnings estimates accordingly. As of end 3Q, RMT is geared at about 1.1x debt-to-equity.
Containership industry faltering. The looming prospect of a global recession and an immense industry order book are pointing to tougher days ahead for the containership industry. News has been dominated by falling freight rates and reports of vessel redeployments and lay ups. RMT charters out its vessels on long-term, fixed rate charters and is less vulnerable to short-term volatility. The charter expiries are staggered, with only one potential lease expiry in the near-term (end 2009). The key risk is counterparty risk, and a consequent charter default or rate renegotiation. RMT’s customers are amongst the top 10 liner companies in the world.
The LTV risk. The demand-supply imbalance is also creating a downward stress on asset values, posing a more immediate threat to RMT because of the loan-to-market value (LTV) covenant in its loan agreements. The breach of the required LTV ratio amounts to a technical default. The cost of debt ratchets up and lenders have a right to demand a “top-up” in terms of cash or additional assets as collateral. With a breach, RMT would have to renegotiate its position with its lenders and possible outcomes could include a vessel sale or a diversion of cash flows to repay debt – impacting unitholder distributions.
Orderbook becomes a burden. RMT expects to take delivery of 11 new vessels costing US$1.2b over 4Q08 to 2010 (with the charters and charter rates already locked in). RMT has credit facilities in place for the first seven ships worth US$492m. An equity injection was planned to partially fund the acquisitions (and accommodate debt repayment terms). Worst case alternatives include an outright vessel sale, a sale-and-leaseback or a sponsor “bail-out” (equity or asset warehouse). RMT can defer the equity issue but it cannot avoid it forever – even with all else equal, at current price levels, the threat of dilution trumps the lure of value. We like RMT for its blue chip charterers and its partial cash retention policy but find the above issues difficult to downplay. Downgrade to HOLD with S$0.40 fair value.