Month: April 2009
FCT – DBS
Steady Yield
At a glance
• Results in line. DPU rose 6.3% yoy due to organic rental growth and higher distribution income payout of 95%
• Higher rental renewals supported by increased shopper traffic and high average portfolio occupancy of 93.4%
• Northpoint AEI on track with high lease pre-commitments and a 20% expansion in average rental rates. This will underpin forward earnings growth
• Maintain BUY, TP $0.81
Comment on Results
Results in line with street estimates. Gross revenue remained stable at S$21.1m (-2% yoy, +8% qoq) on higher portfolio occupancy of 93.4% and positive rental reversions, averaging +7.3% over pcp. NPI grew 2% yoy (+15% qoq) to S$14.7m, lifted by better expense ratio of 30%. Distribution income increased 7.3% yoy to $11.6m (DPU: 1.86cts), thanks to improved operating performance and a higher dividend payout of 95% (vs 90% in 2Q08). As at 2Q09, gearing remains healthy at 30% and interest cover at 4.6x.
Positive DPU Cagr over FY09/11. Despite challenging conditions, DPU is expected to grow by a 4% Cagr over the next 3 years. To date, FCT has locked in 96% of its FY08 gross rental income and has a small 2.5% and 12% of NLA to be renewed in FY09-FY10. Full impact of higher income from Northpoint AEI will be felt from FY10. The makeover, completing mid 09, has enabled the group to tie in 20% higher rentals and boost property NPI by 30%.
Recommendation
Maintain BUY, TP $0.81. We like FCT for its exposure to the suburban retail sector. Earnings resilience derived from a welllocated portfolio catering largely to necessity shopping. In addition, successful enhancement initiatives at Northpoint would lead to a positive 4% DPU Cagr over the next 3 years while healthy balance sheet and little near term refinancing need would mitigate any need for a dilutive fund raising exercise. At current price, FCT offers a potential total return of 25%. Maintain Buy.
FirstREIT – BT
First Reit Q1 distributable income up 2.5%
INDICATING the resilience of the healthcare sector amid hard times, First Reit emerged from its first quarter in positive territory.
Singapore’s first healthcare real estate investment trust posted a 2.5 per cent year-on-year climb in distributable income to $5.2 million and a 1.6 per cent rise in distribution per unit (DPU) to 1.88 cents.
‘Based on its annualised DPU of 7.62 cents and the closing price of 56 cents on April 21, First Reit achieved a distribution yield of 13.6 per cent,’ said First Reit. This compares with 10.9 per cent in Q1 2008.
Although gross revenue increased 0.4 per cent to $7.4 million, net property income dipped 0.1 per cent to $7.3 million as a result of the commencement of capital expenditure provision of about $31,000 for repair and replacement works for four Indonesian properties, said First Reit.
Despite the current economic situation and challenges faced by many Reits in refinancing, First Reit recently secured a three-year $70 million multi-currency transferrable term loan facility (MCTLF) from OCBC.
This will be used to refinance First Reit’s outstanding bank loans of $50.8 million, with the balance for funding the redevelopment of Adam Road Hospital and possible future asset acquisitions.
Although interest rate is higher for this MCTLF, the term loan facility will provide First Reit with greater flexibility to improve its income generating capacity via further asset enhancements and working with its tenants to continually upgrade services.
Looking ahead, First Reit does not expect its performance to be significantly affected by the current economic situation due to its resilient trust structure which is firmly grounded by long-term leases with stable rentals in Singapore dollars with no currency risks and downward revisions.
First Reit’s CEO Ronnie Tan said: ‘Healthcare services are to a certain extent, recession-proof, as patients continue to seek medical care whether in good or bad times. Our hospitals in Indonesia continue to grow at double digit rates for 2008 despite the financial crisis. We believe this positive trend will benefit us.’
FCT – BT
FCT reports 1.7% rise in Q2 income
It expects to sustain income levels despite downturn
DESPITE lower gross revenue, Frasers Centrepoint Trust (FCT) has posted a 1.7 per cent rise in distributable income to $12.2 million for its fiscal second quarter ended March 31.
Distribution to unitholders for the three months stood at $11.6 million, after a retention of 5 per cent of this distributable income by FCT.
This is still 7.3 per cent higher than the $10.8 million distribution to unitholders for Q2 last year. As a result, distribution per unit edged up to 1.86 cents, from 1.75 cents a year ago.
FCT said its gross revenue for the quarter slipped 2.4 per cent to $21.1 million largely due to planned vacancies at Northpoint as a result of ongoing addition and alteration works to enhance and reposition the mall.
This was partly offset by an average increase of 7.3 per cent in rentals among replacement and renewal leases. As at end-March, occupancy rate of the properties in its portfolio was 93.4 per cent, up from 88.7 per cent as at end-December.
Property expenses fell 10.9 per cent to $6.4 million. Including share of associate’s results, total return after tax dipped 2.3 per cent to $14.1 million.
The performance brings its half-year income currently available for distribution to $22.7 million, a dip of 2 per cent. Total distribution to unitholders in the six months to March climbed 5.9 per cent to $22 million. Gross revenue dipped 2.8 per cent to $40.6 million.
Despite the challenging economic climate, FCT is expected to sustain its income performance. Said Christopher Tang, chief executive of the trust manager: ‘FCT is well positioned to meet the prevailing challenging economic conditions with its defensive suburban retail profile, robust capital structure and the completion of Northpoint’s enhancement works.’
Shares of FCT went up two cents to 69.5 cents yesterday.
FCT – CIMB
In good shape
• DPU in line despite the retention of 5%. 2Q09 results are in line with Street and our expectations. 2Q09 DPU grew 6.4% yoy to 1.86cts, 26% of our full-year forecast. Distribution income of S$11.6m grew 7.3% yoy and excluded S$0.6m (5% of available distribution of S$12.2m) retained in the quarter. Gross revenue of S$21.1m deteriorated 2.4% yoy due to planned asset enhancement work at Northpoint. Despite this, net property income grew 2% yoy and 15% qoq to S$14.7m, attributable to: 1) expenses coming off a higher base in 4Q08 from oneoff maintenance expenses; 2) greater economies of scale as expenses were partially shared with the completed Northpoint 2 held by the sponsor; and 3) upgrades to M&E systems during asset enhancement work that resulted in reduced utility costs.
• Operations in good shape. Despite ongoing asset enhancement work in Northpoint, portfolio occupancy continued to climb to 93.4% from 88.7% in Dec 08 as occupancy at Northpoint improved 19.9% pts to 72.1%. Additionally, traffic count for the whole portfolio moved up 8% yoy.
• 96% of gross rental income locked in for FY09. FCT has made good progress with lease renewals in 2Q09. To date, it has locked in 96% of gross rental income for the rest of FY09. This leaves only 15,706 sf of space expiring in FY09. Leases renewed were up 7.3% over preceding rents, or an estimated 2.4% increase per annum. Pre-leasing at Northpoint was positive with 94% of the space taken and completion is expected in Jun 09.
• Intention to term out S$80m of short-term debt. FCT has S$80m of short-term debt that it rolls over every three months. Management is exploring options to term out these short-term loans for longer periods.
• Maintain Outperform and target price of S$1.06. FCT’s progress with pre-leasing renewals, improving occupancy and unfaltering traffic count are encouraging in this difficult time. FCT remains our preferred pick for suburban retail exposure. Our DDM-derived target price of S$1.06 (discount 9.4%) is unchanged. Maintain Outperform.
MLT – CIMB
Steady start to the year
• 1Q09 results in line. Distribution income of S$28.6m and DPU of 1.47cts are in line with Street and our expectations (27% of full-year forecast). Yoy DPU growth was – 22.6% due to additional units from a rights issue in Aug 08, while qoq growth was marginal at 0.7%. Growth in net property income of S$46.2m was strong yoy (+24%), but significantly slower qoq (+2.4%) with a reduced number of new acquisitions to boost the topline.
• Occupancy down 1.6% pts; renewals on track. Occupancy level in MLT’s portfolio fell 1.6% to 98% in Mar 09. Nonetheless, this was still materially higher than islandwide warehouse occupancy of 92.8%. Management reported that over 35% of leases (as a percentage of gross revenue) expiring in 2009 have been renewed. This represents 7% of overall portfolio revenue. Average reversion rates are flat compared with prevailing rates. Tenant arrears remained small at 1% of annualised gross revenue.
• Short-term debt manageable. MLT has S$151m or 12.5% of total debt due in 2009. Management assures that it has sufficient credit lines to refinance this debt. These include S$185m from: 1) a S$46m 3-year term loan completed on 31 Mar 09; 2) S$99m of secured revolving credit facilities; and 3) S$40m of cash earmarked for debt refinancing. Management is also documenting at least another S$80m of debt facilities which will include committed revolving credit facilities and term loans. Average weighted borrowing cost remains low at 2.9% with no assets secured. Asset leverage for the quarter was 38.3%, excluding S$40m of borrowings earmarked for refinancing. This is in line with MAS’s clarification in Jan 09 that debt raised for refinancing purposes earlier than maturity would not need to be counted in the calculation of REITs’ aggregate leverage limit.
• Maintain Outperform and target price of S$0.60. Our DDM-derived target price (discount 9.6%) stays at S$0.60, with no changes to our estimates. Although the pressure to maintain occupancy and rents remains, we are encouraged by its relatively high tenant retention rate of 80% and success in securing refinancing. We believe MLT will be able attain our forecast distribution for FY09.