Month: April 2009
FSL – OCBC
Reinvestment scheme in play for 1Q09 distributions
Results in line. FSL Trust (FSLT) posted US$24.8m in revenue, down 3.3% QoQ and up 49.5% YoY thanks to acquisitions made over the course of 2008. Note that, as previously guided, this is the first quarter where FSLT will not distribute 100% of cash earnings. Instead, the trust will distribute about 73% of cash earnings, or 2.45 US cents per unit, down 5.4% YoY and 20.4% QoQ because of the lower payout. The results were in line with our expectations. The trust guided for a 2Q09 DPU of 2.45 US cents as well.
Voluntarily prepaying loans. FSLT used US$4m of the retained US$4.6m to voluntary prepay loans. We have noted previously that shipping trusts have to re-align their debt tolerance and business model in light of a ‘new world order’ of falling asset values and low lender risk appetite. FSLT’s decision to voluntarily reduce its payout ratio is in that vein – a preemptive gesture of good faith to lenders. FSLT is geared at a still high 1.38x debtto- equity. A US$4m per quarter prepayment is a small number compared to the absolute US$509m outstanding loan amount. This is a gesture – not a game-changer, in our view.
Reinvestment scheme in play. The distribution reinvestment scheme (DRS) will apply in 1Q09, giving unitholders the option to receive 1Q09 distributions in units instead of cash. Any proceeds from the DRS (that is, the saved cash earnings) will also be used to prepay loans. This scheme is an attempt to balance the needs of investors demanding cash yield against concerns of sustainability and gearing. But it is unclear just how many investors will voluntarily “do the right thing” for the trust and elect to receive units instead of cash. The success of the scheme in 1Q09 may significantly affect FSLT’s course of action going forward – if the DRS fails and market conditions persist, FSLT may ultimately have to cut the distribution payout further, effectively making the “right” choice for unitholders.
Valuation. FSLT has a diversified portfolio with exposure to different shipping sub-sectors, and with no charterer contributing more than 20% of annual revenue. Our key concern is counterparty performance and any resulting disruption of cash flows. The current share price is quite clearly pricing in a distressed scenario, in our opinion. However, we would prefer to wait
until the shipping industry shows concrete signs of stabilizing before we turn buyers. Our fair value estimate is S$0.45 (previously under review).
Maintain HOLD.
ART – DBS
Results below estimates
• Ascott Residence Trust (ART) results were slightly below expectations.
• Decline in RevPAU is more than expected
• Uncertainty in major operational markets likely to cap share performance
• Maintain HOLD with TP of $0.59
Results slightly below estimates. Gross revenues and NPI declined by 3.7% to S$42.1m and S$19.9m respectively. This was driven by weaker RevPAU in its major operational markets, which fell by 15% to a portfolio average of S$120. Distributable income was 23% lower at S$10.8m, translating to a DPU of 1.77 Scts for the quarter. On a sequential basis, performance was also slightly weaker, with RevPAU registered a 5% decline.
Balance sheet remains healthy with a gearing ratio of 38% and interest cover of 3.4x.
Adjusting DPU estimates. We lowered our forward RevPAU estimates to take into account a larger than expected fall in RevPAU for Singapore and China, resulting in a lower FY09-10F DPU estimate of 7.1 Scts and 6.9 Scts.
Maintain HOLD, TP $0.59 While ART’s valuation of 0.3x P/BV is one of the lowest valued S-reits in the sector, uncertainty from its major regional markets is likely to overhang on share price performance in the near term. Maintain HOLD, TP lowered to S$0.59 based on DCF. ART currently offers a FY09-10F DPU yield of 15%.
ART – CIMB
Not much downside from here
• 1Q09 results in line, RevPAU down 15% yoy. 1Q09 distributable income of S$10.8m and DPU of 1.77cts were in line with Street and our expectations, forming 25% of our full-year estimates. Yoy, revenue contracted 8%; qoq, the contraction was worse, at -12%. This was blamed on falling RevPAU in the key markets of Singapore (-32.7%), Australia (-23.3%) and China (-18.7%). Japan was the only country with positive growth (5.9%). RevPAU for the group fell 15% yoy. The weak performance was partially due to the typical business-travel lull period in the first and fourth quarters of the year. Lunar New Year holidays in January this year also slowed down travel more than usual in China.
• Net property income (NPI) margins up 3.5% pts qoq. NPI of S$19.9m for 1Q09 was down 16% yoy. On a positive note, the rate of qoq decline slowed to -5%, underpinned by good cost-control. NPI margins improved 3.5% pts from the last quarter, reaching 47.3% in 1Q09. The most significant qoq progress came from Singapore (+20.3%) and Japan (+11%).
• Negotiations for debt refinancing in progress. ART has S$111.6m of debt due for refinancing this year: 86% of this (estimated S$96m) will be due in Dec 09. Management has started negotiations for the refinancing of this debt. Asset leverage at 38.7% remained comfortable.
• Upgrade to Neutral from Underperform; no change in estimates and target price of S$0.56. We are satisfied with our projection of up to a 20% decline in full year RevPAU vs. ART’s performance in 1Q09, which is a traditionally weak quarter. Our DDM-derived target price (discount 10.5%) stays at S$0.56. With our recently revised STI target of 2,160, potential upside to our target for ART is 22%, in line with our expectations for the market. Current P/BV of 0.32x with a prospective 15.6% forward yield looks attractive relative to the sector average of 0.4x. We believe RevPAU and distribution are not likely to deteriorate much from here. Upgrade to Neutral on valuation grounds.
FirstREIT – BT
First Reit Q1 DPU up 1.6%
First Real Estate Investment Trust (First Reit), Singapore’s first healthcare real estate investment trust, reported on Thursday further growth in distributable income for the three months ended March 31, 2009.
Distributable income rose 2.5 oer cent to $5.2 million (US$3.5 million) while distribution per unit (DPU) rose 1.6 per cent to 1.88 cents. Payout was 100 per cent of distributable income.
Based on its annualised DPU of 7.62 cents and the closing price of $0.56 on Tuesday, First Reit said it achieved a distribution yield of 13.6 per cent.
‘First Reit remains committed to maintain an annual 100 per cent distribution payout,’ it added.
FrasersCT – BT
FCT DPU up slightly to 1.86 cents
FRASERS Centrepoint Trust has posted a 1.7 per cent gain in its Q2 income currently available for distribution to $12.2 million.
For the three months ended March, distribution to unitholders went up 7.3 per cent to $11.6 million, as the trust manager has retained 5 per cent of its income currently available for distribution.
As a result, distribution per unit edged up to 1.86 cents, from 1.75 cents in the year-ago period.