Month: February 2009
FCOT – Phillip
Full year results were disappointing, although not unexpected. Revenue was up 42.1%, net property income up 31.8%, but DPU fell 5.1%. Revenue increased on the back of full year contributions from acquisitions and the fall in DPU is mainly attributed to higher borrowing cost.
Portfolio size dropped 13%, mainly due to translation losses of the Australian properties and also downward valuation of AWPF wholesale fund, Keypoint building and Cosmo Plaza. NAV thus fell from $1.42 in FY07 to $0.97 in FY08.
Diversification not a good thing in this case. FCOT has a fairly well diversified portfolio with 43% of revenue contributed by Singapore, 40% by Australia and 17% from Japan. However diversification did not work in this case as the Australia dollars depreciated almost 25% relative to the Singapore dollars over the year. Although FCOT has got currency hedges in place, this has not prevented Central Park and Centrelink recording lower revenue in 4Q08. On a QoQ basis, Central Park revenue fell 23% while Centrelink fell 21%.
FCOT has $620 million to refinance this year, $70 million of which comes due in May 2009 and the rest in Dec 2009. In Nov 2008, F&N demonstrated its show of support by extending a loan of $70 million to FCOT at an interest rate of 3.73%. With its sponsor support, short term financing is not a problem for FCOT. The real test is towards the end of the year where the refinancing quantum is much higher.
We think DPU erosion. We do not think DPU is going to get any respite in the near term. We factor in lower contributions from Australia and also make an allowance for higher tenant vacancies. Another dilution to DPU is the issuance of management fees in units. Approximately 29 million units were issue in lieu of management fee for FY08 versus 8.3 million units in FY07. If share price continues to remain depressed, we project a further 45 million units will be payable for FY09 and DPU will thus be at a high of 57%.
Valuation. We have revised down our gross revenue estimates for FY09F and FY10F by 12% and 13% respectively, mostly to factor in higher vacancies and forex income losses. Our DPU estimates are 4.47cents and 4.35cents. We feel risk-reward is tilted towards the former and downgrade our call from Hold to Sell. Fair value is lowered from $0.21 to $0.14.
Cambridge – Phillip
For FY08, CIT recorded 36.4% rise in revenue, 37.1% rise in net property income
and a 4% drop in DPU. Full year revenue is $72.3 million and DPU is 6.012 cents.
Revenue analysis. Revenues over FY07 and FY08 have increased steadily which reflect the contribution from acquisition as well as the rental escalation component of leases. Net property income is very much in line with revenue growth, however distributable income starts showing a decline from 2Q08 onwards. DPU on the other hand is dismal and has been declining since 4Q07, partly due to the dilutive effect of the equity fund raising carried out in October 2007.
CIT has secured refinancing for its debt of $369 million through a 3 year term loan of $390.1 million. The current gearing is 37.8%. The loan comes at a substantially higher interest of 6.6%(including amortization of upfront cost). We estimate the cash interest circa 5.0%.
Changes at the top. Chris Calvert (former CEO of MacCarthurCook Industrial REIT) was appointed the CEO in Dec 2008 in place of Wilson Ang. Through a series of transaction, NabInvest and Oxley Group have bought over the 80% ownership of the REIT manager with the remaining 20% still under Mitsui Limited. We remain hopeful that the new management team will do more to add value to investors.
Valuation. We think the higher borrowing cost will continue to be a drag on distribution. We are also factoring in higher tenant vacancies to reflect the macro economic conditions. We revise down our gross revenue forecast for FY09F and FY10F by 3% each and assume a borrowing cost of 5.0%. Accordingly, our DPU forecasts for FY09F and FY10F fall 12% and 11% to 4.73cents and 4.99 cents. Fair value is also lowered to $0.27. We lower our call from Buy to Hold.
CMT – BT
CapitaLand rises, CMT falls after rights issues
CAPITALAND and its listed retail trust CapitaMall Trust (CMT) announced massive rights issues on Monday.
But while CapitaLand’s $1.84 billion one-for-two rights issue has been well-received by analysts and the market, CMT’s $1.23 billion nine-for-10 rights offer has not fared as well.
Analysts rushed to issue ‘buy’ calls on CapitaLand after the developer said it was raising money to boost its war chest to $6 billion as it searches for acquisitions. CMT, on the other hand, was criticised for an ‘unwarranted dilution’.
The market seemed to agree yesterday. CapitaLand shares gained 11.4 per cent or 27 cents, to close at $2.63. But CMT lost 6.2 per cent or nine cents to close at a one-year low of $1.36.
Merrill Lynch upgraded CapitaLand to ‘buy’ from ‘underperform’, while OCBC Investment Research upgraded it to ‘buy’ from ‘hold’. CLSA, Kim Eng, UBS Investment Research and UOB-Kay Hian all reiterated ‘buy’ calls too.
‘We believe the cash raised provides CapitaLand with the financial flexibility to ride through challenging property markets, enhance market positioning and, more significantly, the ability to take advantage of opportunistic acquisitions,’ Merrill said.
A few firms were less bullish. Citigroup, CIMB and Nomura maintained their respective ‘sell’, ‘underperform’ and ‘reduce’ recommendations. Citigroup said the rights issue will be a drag on CapitaLand’s return on equity.
Goldman Sachs, which has a ‘neutral’ call on the company, said the rights issue is sufficient to address investor concerns over book value erosion from land bank provisions and associated asset value declines (from listed trusts), which Goldman estimates could be around $1.9 billion spread over the next two or three years.
‘With the sizable rights offering, we see no further need for capital raising in the next two years into the downturn, as the company has said it plans to revisit project commitments,’ said Goldman analysts Paul Lian and Natasha Parchani.
A successful rights issue would refocus attention on CapitaLand’s capacity to benefit from the current market environment as it is more likely than its peers to generate net asset value growth in the next two or three years, the analysts said.
Reviews for CMT’s $1.23 billion rights issue were more mixed. The trust intends to use the bulk of the proceeds to pay off $956.2 million of debt due this year.
CLSA downgraded CMT from ‘outperform’ to ‘underperform’. In contrast, OCBC upgraded the stock from ‘hold’ to ‘buy’.
‘While the proceeds will help the company repay debt and lower gearing to 29.1 per cent (from 43 per cent currently), we see the rights issue to be rather value dilutive,’ said CLSA analyst Yew Kiang Wong. The cost of retired debt, at 3.4 per cent, is much lower than the cost of equity, CLSA noted.
But OCBC analyst Foo Sze Ming said the rights issue is not driven by refinancing issues and is instead for the ‘long-term sustainable growth of CMT’s portfolio’.
‘By paring its gearing level now, CMT will have better financial flexibility to take on opportunities for asset enhancement initiatives and acquisitions in future,’ Mr Foo said.
CMT – OCBC
Gearing concern removed; Upgrading to BUY
Rights issue at steep discount. CapitaMall Trust (CMT) yesterday announced that it will be doing a 9-for-10 rights issue at an issue price of S$0.82 per rights unit. Issue price is at a steep discount of 43.4% to its closing price of S$1.45 prior to the trading halt. Approximately 1.5b units will be offered, raising gross proceeds of S$1.23b from the exercise. This rights issue came as no surprise as we had already previously stated our view that a balance sheet recapitalization may be needed for CMT. Of the proceeds raised, S$956.2m will be used to repay the borrowings due in 2009 and the estimated remaining amount of S$246m (less estimated issue expenses) will be used for asset enhancement initiatives (AEI), general corporate and working capital purposes. After the rights issue, CMT’s gearing will reduce from 43.2% to 29.1%.
Positioning for long term sustainable growth. Given its A2 credit rating by Moody’s and portfolio of quality assets, we do not think that the rights issue exercise is driven by refinancing issues. Instead, we believe that the purpose of the rights issue is for the long term sustainable growth of CMT’s portfolio. By paring down its gearing level now, CMT will have better financial flexibility to take on opportunities for AEIs and acquisitions in future.
Strong support from sponsor. As a demonstration of support for CMT’s rights issue, CapitaLand has agreed to subscribe for its proportionate rights units and also to subscribe for the excess rights units that are not validly subscribed, subject to a maximum total subscription limit of 60% of the total rights units.
Revising down our FY09-10 DPU forecasts. Taking into consideration the dilution impact of the rights issue, we are now revising down our FY09 DPU forecast by 37.3% from 14.5 S-cents to 9.1 S-cents. Our FY10 DPU forecast has also been revised down by 37.8% from 15.1 S-cents to 9.4 Scents. Upgrading to BUY. There is no change to our RNAV estimate of S$1.94 per share, but we are lowering our RNAV discount from 20% to 15% after our gearing concern has been removed. As such, our fair value of CMT has now been raised from S$1.55 to S$1.65 and our ex-rights fair value will fall to S$1.26. As there is a potential upside of 13.5%, we are upgrading CMT from HOLD to BUY.
Rickmers – OCBC
Deadlocked by order book
US$3.5m provision but otherwise steady. Rickmers Maritime (RMT) posted a 11.4% QoQ increase in 4Q08 revenue to US$29.6m. The results met our expectations except for a surprise US$3.5m non-cash provision for vessel impairment on Maersk Djibouti (about 5.5% of FY09F revenue). It is the trust’s only vessel at risk for early lease termination, from February 2010 onwards, per its charter terms. As a result, net profit fell 25.7% QoQ to US$7.2m. RMT will pay out 2.25 US cents for the quarter, flat QoQ and up 5.1% YoY. This translates to an annualized yield of 34% and a distribution payout of 63%. The manager said that given current conditions, it would not provide any guidance on FY09 DPU.
Large funding needs. RMT’s gearing has increased from 1.1x debt-toequity at 30 September to 1.5x as at 31 December. In January, RMT took delivery of its 14th vessel, MOL Destiny for US$72m. Including the January vessel, RMT is contracted to acquire US$1.1b worth of containerships over the next two years. RMT has credit facilities in place to fund the FY09 vessels costing US$420m in all. If the FY09 buys are fully debt-funded, we estimate RMT’s gearing will hit an unsustainable 2.7x on existing equity levels by year end.
And a large funding gap. Assuming the existing facilities are fully utilized, we estimate RMT would need to repay around US$17.9m of debt in FY09 and another US$157m in FY10. Additionally, RMT has yet to arrange funding for the US$711.6m vessels due in FY10. We believe the market value of those vessels would have taken a hit versus the asset cost pre-fixed by RMT. So even if lenders provide 100% loan-to-market value, it would not cover the cost of the vessel. The time for a fresh equity issue is fast approaching. An equity issue in FY09 itself is, in our opinion, necessary to strengthen RMT’s negotiating position with lenders.
Deadlocked until orderbook is ‘resolved’. The manager has so far only said that it “is exploring all options” to finance its order book but this is not enough. The market needs more clarity on financing conditions, the extent of fresh equity required, and the odds of ‘disappearing’ order book (through an outright vessel sale, a sale-and-leaseback or a sponsor “bailout”). A potential loan-to-market value covenant breach is another risk. The outcome of such a breach would depend on the health of RMT’s blue chip charterers and the risk appetite of its lenders. Maintain HOLD with S$0.40 fair value.