Month: January 2009
CRCT – BT
CRCT sees China business remaining resilient
Trust’s net property income for Q4 jumps 76% to $20.4m; DPU at 2.27 cents
CAPITARETAIL China Trust (CRCT) expects its mall business in China to remain fairly resilient even as the country’s economic growth slows this year.
The trust shared this outlook yesterday as it unveiled a 76 per cent year-on-year jump in net property income to $20.4 million for the fourth quarter ended Dec 31, 2008.
As a result, income available for distribution rose 64 per cent to $14.1 million. This translates to a distribution per unit (DPU) of 2.27 cents, exceeding the 1.80 cents in 4Q 2007.
On an annualised basis, CRCT’s DPU in Q4 2008 was 9.03 cents, generating a distribution yield of 15.1 per cent based on the unit closing price of 60 cents as at Dec 31, 2008. The trust gained 3.5 cents to close at 66 cents yesterday.
For FY2008, income available for distribution also improved 43 per cent from a year ago to $45.9 million. This led to a DPU of 7.53 cents, higher than the 6.72 cents in FY2007. The distribution yield reached 12.6 per cent.
According to Barclays Wealth Research, China’s GDP growth could slide to 7.5 per cent this year and the slowdown has raised doubts on whether internal consumption will hold up.
‘We may not be immune to possible slowdowns in consumer spending,’ said Victor Liew, chairman of trust manager CapitaRetail China Trust Management yesterday. But ‘the large proportion of mass-market retailers selling basic necessities at our malls will provide some resilience for our portfolio’.
The top retailers in CRCT’s mall portfolio are Beijing Hualian Supermarket and Beijing Hualian Department Store, which accounted for 29 per cent of gross rental income as of December last year.
‘We are seeing limited impact from the crisis, especially at second-tier cities,’ said the trust manager’s CEO Wee Hui Kan at a briefing yesterday. ‘Now and then, some tenants may not be doing so well relative to before . . . but we have not seen a significant deterioration.’
CRCT’s focus is to ‘preserve stability’ this year by maintaining occupancy levels, fine-tuning the tenancy mix and driving shopper traffic and sales, he said.
This means that acquisitions are not on the cards yet. According to Mr Wee, distressed retail assets have yet to surface and capital for purchases would not come easily.
But he noted that China’s credit environment has improved in the last few months. At the government’s encouragement, banks are more willing to extend loans and costs may be lower than those for offshore funds. ‘We will put some focus on trying to tap the onshore market,’ said Mr Wee.
CRCT’s gearing as at Dec 31, 2008 was 32.8 per cent, and it has $61 million of debt maturing this year.
CCT – CIMB
Smooth ride ahead
• Met expectations. 4Q08 results were in line with Street and our expectations. DPU of 2.71cts grew 16% yoy to form 26% of our forecast for FY08. Gross revenue of S$97.2m was up 56.6% yoy mainly on contributions from One George Street. Fullyear DPU of 11cts was in line.
• Moderate asset write-down of 3%. As at 1 Dec 08, CCT wrote down 3% of its asset values across its portfolio over their last valuation on 1 Jun 08. StarHub Centre was affected the most, by 7.9% and Raffles City, the least, at 1.4%. After the write-down, asset leverage moved up to 37.3% from 35.9% in 3Q08.
• Portfolio occupancy down to 96.2%. Committed occupancy on a portfolio basis was 96.2%, down from 98.9% in 3Q08. The drag was attributed to Wilkie Edge which was legally completed in Dec 08 and only 70% pre-committed. Average monthly rent for CCT’s portfolio was S$7.44 psf in the quarter, up moderately from S$7.20psf in 3Q08.
• No equity raising in “immediate” term; downside factored in. Refinancing nightmares in 2009 should ebb with S$650m of debt refinanced earlier this month. Management is confident of refinancing the remaining S$116m due in Jun 09. With eight unencumbered assets on hand, there should be sufficient financial flexibility for its upcoming refinancing negotiations. Management said there are no plans for equity-raising in the “immediate” term, although it would not define its duration. Weakening office demand has mostly been factored into our assumptions in the form of recession-level occupancy levels (80-85%) and weakening rents.
• Maintain Outperform; target price raised to S$1.12 (from S$1.08). We further refine our assumptions, factoring in rental declines from actual 2008 passing rents. We also introduce FY11 forecasts. Our DPU estimates for 2009-10 increase by 0.8- 3.6%. Our DDM-derived target price also rises to S$1.12 from S$1.08 (unchanged discount 10.4%). Concerns over widespread rights or equity issuance by REITs sprang after A-REIT’s surprise recapitalisation last week, sending REITs’ share prices down. With a P/BV of 0.29x, CCT remains a value stock with forward yields of 13%. Maintain Outperform.
PST – BT
Pacific Shipping Trust delaying acquisitions
PACIFIC Shipping Trust (PST) will delay acquisitions until the shipping market stabilises, but expects to capitalise on opportunities as vessel prices drop.
‘We see some downside risks in first-half 2009. Until the market stabilises we are not looking at capital commitment or acquisitions,’ Alvin Cheng, CEO of PST Management, told BT, saying acquisitions could be 12-18 months away.
Still, Mr Cheng is confident that ‘opportunities’ will arise, resulting in an ‘attractive return on investment’ as asset prices fall.
PST is paying distribution per unit (DPU) of 0.93 US cents for Q4 2008 ended Dec 31. This is 15 per cent lower than in Q4 2007, largely due to 10 per cent retention of the distributable amount and the timing difference between the receipt of funds from a preferential offer in September last year and the earning of income from new vessels. Part of the US$92.3 million raised through the offer was used to finance vessel acquisition.
Total distributable income for Q4 2008 increased 68 per cent to US$6.27 million, while net profit came in at US$6.35 million, up from US$1.65 million previously.
Gross revenue surged 67 per cent to US$14.5 million, due to the contribution from four vessels delivered during the year. A full quarter’s contribution came from the new vessel CSAV Laja, while 50 days’ time-charter income was attributable to CSAV Lauca. Both have been chartered to Compania Sud Americana de Vapores on fixed rates for five-year periods.
For FY 2008, PST’s net profit was up 75 per cent to US$18.3 million, while distributable income increased 28 per cent to US$18.5 million. Gross revenue grew 29 per cent to US$44.6 million.
PST is upbeat that it will ride out the downturn and expects revenue for 2009 to increase 38 per cent year on year on the back of its four new vessels.
Its fleet of 12 vessels is fully financed with no outstanding capital commitments and no refinancing requirements in the medium-term. Its shortest lease expires in 2013.
DPU for Q4 2008 will be paid on Feb 27.
CCT – BT
CCT has no plans in pipeline to raise equity
CAPITACOMMERCIAL Trust (CCT), Singapore’s largest office trust, has no immediate plans to raise equity.
‘We don’t intend to increase debt in any significant way,’ said Lynette Leong, chief executive of CCT’s manager, at the trust’s Q4 results briefing yesterday. ‘If we are not making any acquisitions, we have no need to do that (raise equity).’
CCT shares gained 1.5 cents, or 1.7 per cent, on the news to close at 87.5 cents yesterday, even as the benchmark Straits Times Index fell. Some industry players have said that CCT could issue equity to reduce its gearing ahead of expected falls in asset values during upcoming revaluation exercises.
‘CCT has unequivocally stated that it is not planning to raise equity. That provides a lot of differentiation with the other Reits (real estate investment trusts) in the market,’ said UOB- Kay Hian analyst Jonathan Koh.
The trust’s gearing now stands at 37.6 per cent, and will be maintained at around that level, Ms Leong said. Total debt as at end-December 2008 was about $2.6 billion. By contrast, gearing was 23.9 per cent as at end-December 2007, while total debt then stood at about $1.26 billion.
For the short-term, CCT has some $116 million of debt due in June 2009, but the trust remains confident that it will be able to secure refinancing as it has some eight unencumbered assets worth $2.7 billion in its portfolio. The Reit on Jan 6 announced that it had secured refinancing for $580 million of loans due in March 2009.
CCT also recently abandoned a plan to redevelop the Market Street Car Park, citing the uncertain market outlook and tight credit conditions.
In Q4 2008, CCT saw its distributable income rise 17.4 per cent to $38 million – from $32.3 million a year ago – on higher rental income.
Distribution per unit (DPU) for the three months ended Dec 31, 2008 rose to 2.71 cents, from 2.33 cents for the same three months in 2007. Net property income also rose 47.8 per cent to $65.6 million, from $44.4 million previously.
Revenue in Q4 2008 was boosted by the acquisition of 1 George Street, a 23-storey office block, as well as higher rental income from other properties.
For the full 2008 financial year, CCT’s distributable income rose 27.1 per cent to $153 million, from $120.4 million in 2007. DPU climbed from 8.7 cents to 11 cents, while net property income rose 34.2 per cent to $233.5 million.
CCT also wrote down about 3 per cent of its portfolio value to $6.7 billion, from June 2008’s $6.9 billion. This translated into a 1.3 percentage point increase in gearing. The lower valuation assumes a fall of about 10 per cent in rentals this year, CCT said.
Analysts said that the results were within expectations and reiterated their positive calls on the stock. ABN Amro and Citigroup issued fresh ‘buy’ calls, while Macquarie Research rated the stock as an ‘outperform’. ‘We believe CCT remains a deep value play on the office sector,’ said Macquarie analysts Tuck Yin Soong and Elaine Cheong.
Looking ahead, CCT expects to face challenging times due to the adverse economic climate, said Richard Hale, chairman of the trust’s manager. ‘Our focus continues to be on retaining our tenants and on being proactive in cost containment,’ he said.
CCT is forecasting a DPU of 12.34 cents for 2009. The trust’s manager is actively engaging tenants for forward lease planning and 79 per cent of the 2009 forecast gross rental income has been locked in with committed leases.
Shipping Trusts – OCBC
Relentless stream of negative news flow
Grim industry outlook. Lloyd’s List reports that spot ocean freight rates for some container cargoes have fallen to zero on the Asia-Europe trades, after stripping out surcharges. Asian countries such as South Korea, Taiwan and Japan have seen 25-45% YoY declines in exports according to the most recent monthly data1 . Last week, Drewry Shipping Consultants revised its estimate for 2008 global container traffic growth to 152.8m TEUs, up 7.2% YoY. It is projecting a marginal 2.8% YoY expansion for 2009. In contrast, it projects that the global container fleet will increase by 12.7% this year. The consulting firm said that the demand-supply imbalance is still far too large, despite liner efforts to remove tonnage. Four small container operators went out of business in 2008 and Drewry said that further casualties “are a real possibility”.
Ship values are falling. At the same time, reports of falling asset values continue streaming in. According to Fairplay, both bulker and tanker ship values reached new lows last week. Tankers have seen a 25-40% decline in vessel value. A five-year-old VLCC2 recorded a value of just over US$100m last week, much lower than its US$163m peak price in August. The dry bulk sector has seen even more extreme declines of 65-70% from last year’s peaks. Five-year-old Capesize values have collapsed from US$154m in July to just US$44m last week.
Lenders are the wild card. The biggest threat to the shipping trust sector is the loan-to-market value (LTV) covenant. The preceding data shows that a breach of the required LTV level, which triggers a technical default, is a real possibility. Pacific Shipping Trust is the only trust without LTV covenants on its loan books. The biggest unknown, in our view, is whether and how lenders choose to call out such a breach. One optimistic viewpoint is that lenders will “forgive” or relax LTV requirements for owners with ships on longer-term fixed charters such as shipping trusts, but this could just be wishful thinking.
We are staying cautious. Trying to predict how lenders will react, which ultimately depends on their risk appetite and capacity, is a dangerous guessing game in our opinion. The high trailing yields seem tempting but external events such as an LTV breach could reduce or eliminate distributions. We retain our NEUTRAL rating on the sector. The trusts release 4Q08 results in the next couple of weeks. While quarterly cash earnings tend to be fairly stable, managers’ articulation of the trusts’ strategy and outlook for 2009 could be worth noting.