Month: February 2009
MI-REIT – BT
Moody’s downgrades MI-Reit again
MOODY’S Investors Service has downgraded Mac- arthurcook Industrial Reit (MI-Reit) for the second time in 10 weeks.
In the latest move, the ratings agency cut the trust’s corporate family rating from Ba2 to B1. And the rating remains on review for possible downgrade, Moody’s added.
‘The downgrade reflects MI-Reit’s heightened liquidity pressure as the refinancing of its $201 million loan maturing in April 2009 remains unresolved,’ Moody’s vice-president and senior analyst Kathleen Lee said in a statement yesterday.
MI-Reit’s units closed at 23.5 cents on the Singapore Exchange yesterday – an 80 per cent slide from $1.20 last Feb 29.
Many Singapore Reits are saddled with refinancing difficulties in the current tight credit market, as well as operating weakness amid the recession.
MI-Reit said on Nov 26, 2008 that it expected to finalise negotiations on refinancing its debt maturities by the end of January this year.
Moody’s pointed out that the trust is still negotiating with its incumbent lenders. ‘However, the terms and conditions – as well as the time frame to complete the negotiation – are still uncertain for the time being,’ Ms Lee said.
Yesterday’s downgrade reflects the fact that besides debt maturities due in April, MI-Reit has an unfunded finance need of $91 million to purchase plot 4A at International Business Park in Jurong by the fourth quarter this year.
‘This presents an additional funding challenge … in the prevailing weak credit environment,’ Moody’s said.
Its ratings downgrade reflects its concern that MI-Reit’s strategic direction and asset profile are increasingly uncertain due to the trust’s lack of access to capital, limited operating scale and modest franchise, it explained.
The review for a possible further downgrade will focus on two things – progress in, and terms of, refinancing efforts for MI-Reit’s debt maturing on April 17; and funding for the International Business Park plot under a sale and lease-back call-and-put option by Q4.
In August 2007, MI-Reit said it had agreed to buy Plot 4A from Eurochem Corporation, a member of Tolaram Group.
The project comprises a 13-storey office building with a basement car park, slated for completion in 2009. Eurochem will lease back the asset from MI-Reit under the deal.
Moody’s said MI-Reit’s rating could be downgraded again if material progress on securing committed finance for its April 2009 debt maturities is not made in the next two months.
Moody’s downgraded the trust to Ba2 on Nov 26 last year.
IndiaBulls – BT
Indiabulls secures 4-year 2b-rupee loan
INDIABULLS Properties Investment Trust (IPIT) has secured a two billion rupee (S$61.73 million) four-year term loan for its One Indiabulls Centre property in Mumbai.
The loan is from LIC Housing Finance.
IPIT is an Indian real estate investment trust (Reit) that made its trading debut on the Singapore Exchange in June last year. One Indiabulls Centre was one of two properties in IPIT’s portfolio unveiled at the time of its initial public offering.
The loan is obtained through Indiabulls Properties Pte Ltd (IPPL), which owns One Indiabulls Centre. IPPL is in turn owned by the Reit. Corporate guarantee for the loan is provided by Indiabulls Real Estate (IBRE), the sponsor of IPIT.
‘The board of directors believes that securing this loan in face of severe global turmoil and economic downturn is a testimony of the quality of IPIT’s assets as well as the financial and business strengths of the sponsor,’ said the trustee-manager Indiabulls Property Management Trustee (IPMT).
The trustee-manager also said in its announcement yesterday that regulatory changes being considered by the Maharashtra state government would increase the floor space index in the area where IPIT assets are located from a maximum of 1.33 for residential projects to a maximum of 5 for five-star residential hotels.
The trustee-manager said that because of the possible regulatory changes, it is evaluating a proposal to develop a branded, luxury five-star residential hotel to replace the residential component of One Indiabulls Centre. IPIT has had preliminary discussions with various hotel chains.
The other property in the Reit’s portfolio, Elphinstone Mills, has been branded as ‘Indiabulls Finance Center’, to position the towers as a financial services hub.
The trustee-manager also announced that Tarun Tyagi, who was previously the chief financial officer of IBRE, has been appointed chief executive officer of IPMT, replacing Pankaj Thukral, who will resume his earlier role as IPMT’s CFO.
Mr Tyagi, 35, holds masters degrees from Columbia University and University of Illinois at Urbana-Champaign. He had worked at Goldman Sachs and Credit Suisse previously.
Vinesh Kumar Jairath, who once was principal secretary, Maharashtra, has been appointed as an adviser to Mr Tyagi.
Cambridge – CIMB
Safe for now
• Met expectations; NPI margin declined. 4Q08 DPU of 1.37cts and FY08 DPU of 6.01cts were in line with Street and our expectations. Full-year gross revenue of S$72.3m was up 36.3% yoy on increased contributions from earlier acquisitions. 4Q08 NPI margins declined 6.3% pts qoq to 82.2% on higher property expenses, doubtful debt provisions and Shariah compliance fees. Distributable income in 4Q08 declined 7.8% qoq owing to increased borrowing costs. Occupancy remained high at 99.5%
• Refinancing woes over. In Dec 08, management successfully secured refinancing for debt due in Feb 09 with a S$390.1m syndicated 3-year loan from HSBC, RBS and its parent NAB. Including the amortisation of upfront costs, all-in interest cost is estimated at 6.6%. With this refinancing, CIT has no debt due till 2011, with a gearing of 37.8%
• Changes at the helm. CEO Mr Wilson Ang has stepped down after the refinancing exercise and Mr Chris Calvert (ex-CEO of MacarthurCook Industrial Trust) has taken over. Management foresees pressure on distribution mainly from higher interest costs.
• Maintain Outperform at higher target price of S$0.53 (from S$0.52), still based on DDM valuation (9.6% discount rate and 2% terminal growth). CIT has relatively high tenancy risks in view of its dependence on its top 10 tenants (which contribute more than 60% of revenue); its small number of tenants (under 100) compared with A-REIT (860) and MLT (224); and greater exposure to SME tenants. To account for possible defaults and lower occupancy levels, we reduce our growth assumptions to -2% for FY09 and 0% for FY10. On the other hand, we reduce our interest cost assumptions to 5.5% from 6.3% as amortised transaction costs included in total cost of debt are non-cash items. Our DPU estimate for FY09 increases 1.6% while our FY10 estimate declines by 1%. We also introduce FY11 forecasts. With forward yields of 16.6% and at 0.39x P/BV, CIT remains cheaper than the S-REIT average of 0.41x. Also, CIT’s main attractions remain its long weighted average lease expiry of 5.7 years, stepped-up increases for its leases, and 16 months of security deposits. Maintain Outperform.
MI-REIT – BT
Moody’s downgrades MI-Reit
Moody’s Investors Service on Thursday downgraded Macarthurcook Industrial Reit’s (MI-Reit’s) corporate family rating from Ba2 to B1.
The rating continues to be on review for possible downgrade, Moody’s said.
‘The ratings downgrade reflects MI-REIT’s heightened liquidity pressure as the refinancing of its S$201 million loan maturing in April 2009 remains unresolved,’ Moody’s vice-president and senior analyst Kathleen Lee said.
The trust had announced on Nov 26, 2008, that it expects to finalise negotiations on refinancing its debt maturities by the end of January 2009, though Moody’s notes that the trust is still negotiating with its incumbent lenders.
‘However, the terms and conditions – as well as the timeframe to complete the negotiation – are still uncertain for the time being,’ Ms Lee added.
The downgrade also reflects the fact that in addition to the debt maturities due in April, MI-REIT has unfunded financing needs of S$91 million to complete a put and call option over 4A International Business Park by fourth quarter 2009. ‘This presents an additional funding challenge facing the trust under the prevailing weak credit environment,’ the ratings agency noted.
LMIR – OCBC
Triple whammy decimates 4Q DPU
Sickly 4Q. Lippo-Mapletree Indonesia Retail Trust (LMIR)’s 4Q results missed both our expectations and LMIR’s forecasts at IPO (despite contributions from a post-IPO buy). Gross revenue fell 19% QoQ to S$21.4m. We understand this was driven by expiry and early termination of leases as well as declining other income. LMIR also made a S$7m provision on
receivables, with net property income subsequently falling 51% QoQ to S$12.4m.
NAV falls 26% QoQ. LMIR also recorded a 26% QoQ fall in NAV to S$0.71. We estimate that property values slipped 9% in Indonesian Rupiah terms with the independent valuer adopting a 200 basis point cap rate expansion to reflect higher interest rates. This, coupled with adverse IDR-SGD forex movements, led to LMIR booking a S$344.5m fair value (non-cash) loss on property values. While distributable income is hedged, asset values are not, and investors bear the risk of SGD-denominated ownership of IDRdenominated assets.
Everything but the kitchen sink. Meanwhile, LMIR also decided to write off S$3.3m in fees on an unused loan facility as the manager believes acquisitions are unlikely in 2009. This is being treated as a cash charge, impacting distributions. Together, this write-off; the revenue decline; and the provision ate a substantial chunk out of 4Q distributable income, which fell 81% QoQ to S$3.2m. This translates to a 4Q DPU of 0.3 S cents, or an annualized yield of just 5% (versus 27% based on 3Q DPU).
Provision size could signal revenue model risk. LMIR attributed the S$7m provision to outstanding rents from wholesaler tenants or third-party agents who earn revenue from sub-leases on atrium spaces/corridor leases. These wholesalers are not only in arrears but have also terminated their leases. Now, we understand casual leasing contributes about 10% of total revenue. But on that basis, the exceedingly large provision is equivalent to an entire year’s worth of arrears. We also understand that LMIR does not collect security deposits from these wholesaler tenants. Early termination of leases – especially of this breed – is then a key risk, creating earnings uncertainty. We note LMIR has another S$19m in receivables, or 19% of total FY08 revenue.
Downgrade to HOLD. LMIR needs to resolve the uncertainty through better (direct) rental contracts as well as security deposits. We have lowered our earnings estimates, and will keep a close watch on earnings stability over the next few quarters. For now, LMIR’s 20% FY09F yield seems relatively expensive on a risk-reward basis. Downgrade to HOLD with S$0.24 fair value (prev: S$0.38).