Month: April 2009
LMIR – OCBC
DPU sees sharp recovery QoQ
DPU recovers. LMIR Trust posted S$18.7m in 1Q gross revenue, down 8.1% YoY and 13% QoQ. Net property income fell 9.3% YoY to S$17.5m, but registered a 41.7% QoQ improvement as 4Q NPI was hit by a S$7m provision for receivables. 4Q results were also hit by a S$3.3m write-off of fees on an unused loan facility. Consequently, distributed income rose 351% QoQ to S$14.6m, while falling 13% YoY. LMIR will pay out 1.36 S cents for the quarter versus the 0.3 S cents paid out a quarter ago. This is equivalent to an annualized yield of 22.2% on the current share price. Results were better than expected.
Casual leasing still a problem. To recap, 4Q was plagued by a few key issues: expiry and early termination of leases as well as declining other income. Last quarter’s provision was on outstanding rents from wholesaler tenants or third-party agents who earn revenue from sub-leases on atrium spaces/corridor leases. These wholesalers were in arrears and had also terminated their leases. These issues flowed through to 1Q revenue as well. The manager said it is moving away from wholesale tenants to dealing directly with casual tenants. We note LMIR still has another S$19.3m in receivables, or 19% of total FY08 revenue.
Rental market is tougher. Indonesia’s central bank is projecting economic growth of 3-4% in 2009, compared to growth of 6.2% a year ago. The manager said that LMIR was achieving lower rental increases on lease renewals than it had forecasted at IPO. The manager guided that the rental outlook for 2009 is challenging, as “retail space demand is expected to weaken and competition among landlords to intensify”. We note that portfolio occupancy has fallen two quarters in a row now, to 95% from 95.7% in December. This is still higher than the 83.1% industry average (Cushman & Wakefield). Mal Lippo Cikarang saw the biggest decline, with occupancy falling 700bps to 86.6% in a space of three months.
Issue with lender. The manager warned that there is some delay in arranging the correct documentation for its S$125m loan. It is currently asking its lender for an extension – which may result in a one year reduction in loan tenure and a restructuring fee of S$1.5m. LMIR is geared at 12.3%. We have adjusted our earnings estimates but will keep a close watch on earnings stability over the next few quarters, as well as outstanding receivables. We maintain our HOLD rating and S$0.24 fair value as we track these issues.
FCT – OCBC
QoQ improvement as asset enhancement winds up
DPU up QoQ. Frasers Centrepoint Trust (FCT) posted S$21.1m in 2Q09 revenue, down 2.4% YoY but up 8.3% QoQ. NPI margins improved to 69.7% from 66.8% a year ago and 65.9% in 1Q09 due to the absence of one-off expenses and cost management. FCT will distribute S$11.6m for the quarter, up 7.3% YoY because of a larger 100% payout (versus 90% a year ago) and up 11.3% QoQ. Unitholders will receive 1.86 S cents per unit, or an annualized yield of 10.7%. FCT’s results were slightly better than expected: 1H09 revenue and distributed income make up 52% of our full-year estimates.
Asset enhancement winding up. In recent quarters, the trust’s earnings have been distorted by planned enhancement works at Northpoint. The property earned S$2.5m in net property income, down 29.1% YoY but up 58.2% QoQ as the temporary vacancy situation corrected in line with progress on the works (72% actual occupancy at Mar 09 versus 52% as at Dec 08). We expect occupancy figures to improve further in 2H09, with the work scheduled to be completed by June 2009. The manager has secured or is in advanced negotiations for leases on 94% of the mall’s NLA. FCT re-affirmed its guidance for post-enhancement rents at the mall, and says Northpoint can achieve S$4.5m in NPI with 100% occupancy – which is 77% higher than what the property earned this quarter.
Portfolio holding course. FCT’s other two properties maintained occupancy rates of 99.5%-100%. Causeway Point recorded an 8% QoQ increase in NPI to S$11m, while Anchorpoint registered a 16% QoQ increase in NPI to S$1.1m. Only 0.9% of portfolio NLA was renewed in 2Q09, at a 7.3% increase over preceding rents. This is a significant step down from the increases achieved in the preceding four quarters, which have all been in the high teens.
For stability seekers. We still like FCT’s relatively “safer” suburban portfolio and it’s mass-market, non-discretionary spending focus. Our valuation prices in a 5-7% decline per annum in new rentals/ renewals over the next two years (except for the uplift at Northpoint post-works). FCT is geared at a low 29.7%, with the bulk of its loans maturing in July 2011. We think FCT
is an attractive proposition for investors seeking yield stability. However, from a value perspective, we think there are better deals out there in the sector. The lack of critical mass in the current portfolio, with growth plans on hold, is also a concern. Maintain HOLD with S$0.62 fair value
MLT – OCBC
A flat, but better than expected, 1Q09
Fairly flat QoQ. Mapletree Logistics Trust (MLT) posted S$53.3m in 1Q09 revenue, up 24.9% YoY, thanks to acquisitions. Revenue was fairly flat on a sequential basis, up only 1.7% QoQ. NPI margin stood at 86.7% for the quarter, slipping from the 87.6% margin achieved a year ago but slightly better than the 86.1% recorded in 4Q08. Distributable income rose 0.7% QoQ and 36.1% YoY to S$28.6m. MLT will pay out 1.47 S cents/unit, down 22.6% YoY (because of an enlarged units base post last year’s rights issue) and up 0.7% QoQ. This translates to an annualized yield of 13.1%. The manager reaffirmed its commitment to pay out 100% of distributable income.
But better than expected. 1Q results outperformed our expectations by 5-8% due to our conservative occupancy assumptions for FY09. Our estimates incorporate a fairly bearish 90% portfolio-wide occupancy assumption over FY09-10. MLT’s overall occupancy as at 31st March is 98.5%, versus 99.6% as at 31 December. Some pockets of weakness have emerged: Hong Kong occupancy has fallen from 98.2% as at December to 95.8% at March, while China occupancy has fallen from 99.2% to 91.7%. Note that the China fall is because of problems with one tenant (contributes less than 1% of total revenue). At the same time, other markets like South Korea, Japan and Malaysia are holding at 100% occupancy. This variety in performance explains the small size of the overall dip, and validates the portfolio’s advantages of geographical diversification and balance between multi-tenanted and sale-and-leaseback properties.
Refinancing underway. MLT is geared at about 38.3% debt-to-assets. During the quarter, MLT raised some S$105m in new loans to refinance existing debt. As of 31 March, about S$151m in loans will mature this year, and the manager announced significant progress in arranging refinancing. While a US$20m term loan is still being negotiated, MLT has enough committed lines and cash on hand to refinance all 2009 loans.
Valuation achieved. We believe our investment thesis still stands: occupancy will be the key performance driver in the industrial space; but MLT’s diversified and high quality portfolio will allow it to deliver reasonably stable income to unitholders over the next two years. MLT has had a good run, up 15.4% since our re-initiation in February. However, we have not seen enough corresponding positive signals for the industrial market. As our fair value estimate of S$0.45 has been achieved, we are downgrading the stock to a HOLD.
PST – OCBC
DPU up 5.4% QoQ, CSAV in focus
DPU up 5.4% QoQ. Pacific Shipping Trust (PST) posted a significant 72% YoY increase in 1Q09 revenue to US$15.2m, due to contributions from the four vessels acquired last year. This is the first quarter recording full contributions from all four vessels and 1Q revenue rose 4.9% QoQ. Cash earnings (net profit adjusted for non-cash items such as depreciation) rose 63% YoY and 4.8% QoQ to US$10.8m. The trust will pay out 0.98 US cents per unit, up 5.4% QoQ and 1% YoY. The small YoY increase in per share figures is due to the enlarged unitholder base after last year’s preferential offering. The results were in line with our expectations.
CSAV renegotiation in focus… As announced last week, PST customer CSAV is asking ship owners (including PST) for a temporary reduction in charter hire payments. Two PST vessels are chartered to CSAV on 5-year time charters. We expect PST to agree to this renegotiation request as this is probably the best option PST has in the current environment. Discussions are still in preliminary stages but details are thin on: 1) whether the various ship owners will all agree to the request; 2) the exact quantum of the discount; 3) the size and type of compensation granted to owners.
…making lenders a concern. Despite wide-spread issues in the ship financing arena, PST had so far managed to escape ‘lender overhang’ due to its fairly conservative business model; a fortuitous equity issue last year that strengthened its balance sheet; and importantly – the lack of loan-to-value covenants on its books. But the CSAV issue tilts the balance of power, in our view: a renegotiation likely qualifies as ‘material change’ in the trust’s circumstances. PST’s lenders could conceivably tack on a punitive spread to PST’s cost of debt (increasing interest expense) or demand higher debt repayments. We understand that PST’s lenders are reserving judgment for the moment, with no explicit renegotiation proposal out yet.
Valuation. We think it is too early to turn buyers of shipping trusts – we would prefer to wait until the shipping markets show concrete signs of stabilizing. For PST, significant uncertainty remains on the CSAV front. We also see a possibility that PST’s board takes an even more prudent stance on distributions in the coming quarters in response to recent events. Counterparty risk (both CSAV and PIL), and lender reaction, remains our key concern, which we think is adequately reflected in our US$0.16 fair value estimate. Maintain HOLD.
MLT – DBS
Attractive valuations, stable yields
At a glance
• Results were in line with our estimates, above consensus
• Portfolio occupancy remained relatively robust
• Minimal refinancing risk
• Maintain BUY, TP $0.56 based on DCF
Comment on Results
In line with expectations. Gross revenues and net property income grew by 25% to S$53m and S$46m respectively as a result of a larger portfolio. Distributable income improved by 36% to S$28.6m, translating to a DPU of 1.47 Scts. When compared against 4Q08 performance, incomes remained relatively stable.
Portfolio occupancy remained high at 98.5%. Key operating markets remained relatively stable. Slight decline from 4Q08 (99.6%) as a result of MLT taking back a property in China. However, impact on earnings is expected to be within 1% of income and within our projections of a 5% increase in vacancy levels by end FY09. We believe that upside surprise will derive from the trust managing to retain current occupancies for the rest of FY09. As of 1Q09, in excess of 80% of FY08 revenues have been secured till date.
Minimal refinancing risk. MLT has secured sufficient resources to meet its 2009 debt obligations. We remain confident on its financial position given (i) an unsecured loan portfolio leading to no LTV pressures, (ii) ample interest cover expected to remain above 4.0x, and (iii) strong parentage & relationships with bankers.
Recommendation
Attractive valuations. We believe that MLT, trading at 0.5x P/BV, coupled with a prospective forward DPU yield of 12% is attractive. We maintain our BUY call on MLT, TP adjusted to S$0.56, on the back of lower equity risk premium assumptions.