Month: April 2009
Suntec – Phillip
Suntec REIT reported gross revenue for 1QFY09 of $64.9 million (+16.0% y-o-y), net property income was $49.2 million(+15.4% y-o-y). Distributable income was $46.4 million(+18.2% y-o-y). DPU for the quarter was 2.918 cents (+15.9% y-o-y).
Strains of recession showing. Occupancy came off slightly in 1QFY09 with office occupancy of 97.4%(-2.5% y-o-y) and retail occupancy of 98.8(-0.01% y-o-y)%. Average rent for leases secured in the quarter was also lower at $9.96 vs 4QFY08 average rent of $11.20. Meanwhile, average rent for expiring leases is $6.64 vs 4QFY08 average rent of $5.42. These indicate that while passing rents are playing catch-up to the spot rates, the gap between passing rent and spot rent is also converging much earlier due to falling spot rates. Retail portfolio average rent registered slight increase from $11.02 in 4QFY08 to $11.05 in 1QFY09.
Highlight of the day. Suntec REIT announced refinancing details of its $825 million debt that is maturing this year. $700 million would be refinanced with a 3-year term loan and the other $100 million with a 7-year term loan. All-in interest cost including upfront fees is at a margin of 3.75% on a floating basis. With the refinancing plan in place, the next loan maturity is in 2011 with loan amount of $532.5 million.
The announcement of the refinancing is definitely positive news for Suntec REIT. The ability to secure funding of $825 million at comparatively low interest margin demonstrates the lenders’ confidence in the REIT. Our next concern is the impact of the economy on Suntec REIT. As mentioned earlier, average rents for new leases fell 11% in 1QFY09 from 4QFY08. Approximately 46% of office leases are expiring in 2009 and 2010, which we feel could be subjected to greater rent pressure. We maintain our Hold recommendation with a fair value of $0.69.
Cambridge – DBS
Looking Steady
At a glance
• Results were in line with our estimates
• Only 6% of income to be renewed in next 4 years
• No ST refinancing requirements
• Maintain BUY, TP S$0.38
Comment on Results
Stable performance. Cambridge Industrial Trust (CIT) 1Q09 results were line with expectations. Gross revenues and NPI grew by 4% and 3% respectively to S$18.3 and S$16.1m respectively. The growth in performance was mainly as a result of additions from properties purchased in 2H08 and rental escalation from 21 of its properties. On a QoQ basis, performance remained flat. Distributable income was 19% lower largely due to higher interest cost on the new debt and management election to receive their fees in cash. DPU for 1Q09 was 1.291 Scts.
Gearing at 39.9% with interest coverage ratio (ICR) of 3.6x. These are within its loan covenants of an ICR of 2.5x and gearing of 55%. We note that CIT’s bankers will have the right to lockup cash proceeds in the event of CIT breaching the 50% gearing level. However, we view that it is unlikely to be breached, as it will involve a further estimated 20% reduction in asset values.
Portfolio valuation in 2Q09. Management informed us of the need to perform semi-annual valuations for its properties by its bankers. While we expect CIT to report further asset values write-downs in 2Q09, the quantum of devaluation should be mitigated by the fact that CIT properties are under-rented (signed on long term leases back in 2006) when compared to current market rents.
Recommendation
Maintain BUY, TP adjusted to S$0.38. CIT is expected to continue delivering a consistent FY09-10F DPU yield of 16% given good income visibility with (i) a secured income stream with average lease of 5.5 years, (ii) having only 6% of topline to be renewed in the next 4 years, (iii) locked in debt re-financing till 2012.
Cambridge – Phillip
On a quarter-on-quarter basis, gross revenue for 1QFY09 was flat at $18.4 million (+4.5% y-o-y), net property income increased 6.6% to $16.1 million(+3.2% y-o-y), distributable income decreased 5.5% to $10.3 million(- 18.2% y-o-y). DPU for the quarter is 1.291 cents.
CIT’s gross revenue for 1QFY09 registered flat growth, which was in-line with expectations, given there wasn’t any catalyst to earnings. Portfolio occupancy remains at a high 99.2%. However distributable income fell 5.5% and DPU fell 6.0% mainly due to higher interest expense incurred on the new loan.
CIT refinanced its loan in Feb 2009 and has no refinancing worries for the next three years. The refinancing comes at substantially higher interest of 5.9% and is the main reason for the decrease in DPU. Our previous estimate was an interest cost of 5.0%. Current gearing is 39.9%.
Without the overhang of refinancing worry, the only concern is whether CIT can maintain its portfolio occupancy. We continue to assume a portfolio vacancy of 3%. Revenue growth is supported by fixed rental escalation built into leases. We tweaked our assumptions to account for lower property expenses due to government rebates and also higher interest expenses vs our previous assumptions. CIT is currently trading at 60% discount to NAV. We have a forecasted FY09F DPU of 4.73 cents, which translates to 16.6% dividend yield. We apply WACC of 11.4% and terminal growth of 1% to our DCF valuation. Fair value is raised from $0.27 to $0.31. We maintain our HOLD recommendation.
StarHill Gbl – DBS
Results in line
At a glance
• Results were in line with our estimates
• 39% of space up for renewal in 2009-2010
• Inexpensive but catalyst appear lacking in near term
• Maintain HOLD, TP S$0.60
Comment on Results
Stable performance. Starhill Global REIT (SGREIT) reported 1Q09 results in line with our expectations. Gross revenues and NPI grew by 13% and 17% to S$34.3m and S$27.1m respectively. NPI margins improved to 80% from 76% due to (i) higher revenues post its Toshin rent review in July’08, (ii) positive rental reversions for certain office space (+110% from preceding rents), (iii) aided by savings from property rebates enjoyed during the quarter. Distributable income came in at 7% higher yoy, translating to a DPU of 1.87 Scts. For 1Q09, SGREIT is retaining c.5% of income available for distribution for working capital purposes.
Strong financial metrics. Gearing remained relatively low at 30%, interest cover at 4.9x. while NAV stands at S$1.43.
39% of space up for renewal in FY09-10. Looking ahead, SGREIT has c. 15%(FY09) and 24%(FY10) of its income up for renewal in an increasingly tough operating climate. We estimate asking rents for its office and retail space to decline by 10-50% over the next 2 years. Vacancy levels is also estimated to increase by 5 -10%.
Recommendation
Maintain HOLD, TP maintained at S$0.60. SGREIT currently trades at 0.3x P/BV, below peers average of 0.4x P/BV. Newsflow from discretionary shopping is expected to continue remain lackluster, capping re-rating opportunities. As such, maintain HOLD, TP $0.60. Currently, SGREIT offers a FY09-10 yield of 14-15%.
Rickmers – DBS
In the doldrums
At a Glance
• Lowered DPU payout to base distribution level of 2.14 UScts (down 5% qoq)
• No headway yet on financing for the four 13,100 TEU Maersk vessels due for delivery next year
• In talks with lenders for waiver of debt covenants
• Liquidity challenges next year with impending bullet loan repayment in April’10
• Maintain HOLD with a reduced TP of S$0.39
Profit stronger than expected. While revenue of US$32.5m (up 10% qoq) was in line with expectations, net profit surged 54% qoq to US$11m. This was largely on the back of lower-than-expected interest expenses and the lack of transaction fees. Distributable cash flows increased 8% qoq to US$16.8m. The DPU payout of 2.14UScts corresponds to only 54% of available cash.
But even existing credit facilities may shrink. With sharp contractions in asset prices, lenders may choose to restrict the amount to be drawn down from available facilities. This is on top of the Trust’s inability to secure funding for the US$711m of committed capex due next year. At worst, the Trust may have to sell the Maersk vessels (with charter) to a 3rd party at a sizeable haircut.
Are more DPU cuts on the way? The Trust would need to repay about US$158m of loans next year, including a US$130m tranche in April’10. The possible redelivery of the Maersk Djibouti in Feb’2010 implies added revenue pressure. The 5% cut in DPU may, thus, be no more than a signal, given the uncertainties. However, at current valuations, even a 50% cut in DPU going forward would imply a FY09 yield of more than 22%. We conservatively impute a 20% cut in DPU for the next 3 quarters. Maintain HOLD, TP cut to S$0.39.