Month: April 2009
PST – BT
PST’s Q1 distributable income surges
Revenue in Q1 boosted by four new vessels
AS the global economic slowdown and credit crunch continue to erode demand, freight rates for containerships and tankers are likely to remain depressed this year.
For instance, the Baltic (Dirty Tanker) Index has dropped 46 per cent since the start of this year despite the tanker sector being traditionally more resilient, says Pacific Shipping Trust (PST).
But PST – which leases vessels to charterers on long-term bare-boat or time charters – registered stable growth for Q1 ended March 31, as revenue was boosted by four new vessels.
Total distributable income surged 75 per cent year on year to US$6.5 million, from US$3.7 million. Minus the 10 per cent of income retained as part of PST’s policy of long-term strategic development, US$5.8 million will be distributed, translating to distribution per unit (DPU) of 0.98 US cents, compared with 0.97 US cents previously.
Net profit grew to US$6.6 million in Q1 2009, from US$466,000 in Q1 2008.
Gross revenue rose 72 per cent to US$15.2 million, on the back of full-quarter contributions from four new vessels delivered in 2008 – Kota Naga, Kota Nabil, CSAV Laja and CSAV Lauca.
‘PST’s current portfolio of 12 vessels is fully financed,’ said PST Management chief executive Alvin Cheng. ‘We continue to amortise our loans on a monthly basis to maintain a conservative debt-to-equity ratio. This will provide the headroom for financing should there be opportunities for new acquisitions in the future.’
Last week, PST gave an update on one of its charterers, Latin American line Compania Sud Americana de Vapores (CSAV), which is restructuring to strengthen its operating cash flow and consolidate its South American franchise.
CSAV, which is looking to boost its financial position by about US$750 million, chartered CSAV Laja and CSAV Lauca from PST on five-year time-charters from September and November 2008 respectively.
As part of its restructuring plan, CSAV has asked shipowners to assist by temporarily reducing charter hire payments about 30 per cent, part of which will be capitalised.
However, participation in the scheme is on a voluntary basis.
CSAV accounts for 30 per cent of PST’s top line but contributes less than 20 per cent of its operating cash flow. While loan repayments may not be an issue for PST, distributable income could be affected.
Mr Cheng has said previously that PST’s cash conservation strategy will allow it to meet its current financial obligations should an agreement be reached with CSAV.
‘Based on current information available, it has been determined that there will be no significant impact on the carrying amounts of the said vessels and it was determined that the recoverable amounts are above the carrying amounts of the vessels,’ PST said in a statement.
PST units closed half a cent higher at 16.5 US cents yesterday. Books close April 30 and DPU will be paid on May 29.
KREIT – Nomura
First look
KREIT reported its 1Q09 results after market close today – headline numbers were slightly ahead of the consensus full-year forecast but broadly in line with our fullyear estimates. Rents appear to be holding steady during the quarter, with a 5.9% sequential increase in the average portfolio gross rent to S$8.06psfpm. However, committed occupancy of the portfolio declined further to 95.8%, from 99.0% a quarter ago. BUY rating and price target of S$1.29 maintained.
Steady rents, sliding occupancy
FSL – DBS
Steady going for now
No major surprises from FSLT in 1Q09. As per guidance, FSLT announced a DPU of 2.45 UScts, which amounts to a payout ratio of 73%. While this is lower than DPU of 3.08 UScts in 4Q08 (100% payout), actual operating cash generation in 1Q09 of US$16.9m was better than 4Q08 cash generation of US$15.4m, highlighting that the business model is still holding up well. The residual cash was utilized to prepay US$4m of loans. Meanwhile, the DIstribution Reinvestment Scheme will apply for 1Q09, and unitholders may choose to receive part or all of their distributions in the form of new units. Any reinvested income will again largely be used for loan prepayments.
Maintain HOLD, TP revised to S$0.48. Results look solid enough. While revenue was down slightly (3%) q-o-q to US$24.8m, lower interest expenses meant that net profit was up from US$0.5m in 4Q08 to US$1.5m in 1Q09. EBITDA margin also came in at a healthy 93.3%.
And FSLT keeps lenders happy. Of the US$16.9m cash generated, DPU payout amounted to US$12.3m and the residual cash of US$4.6m was used towards a voluntary loan prepayment of US$4m in 1Q09. We view this move as positive, as it signals strong cash position to lenders and enables FSLT to negotiate better terms, in case any loan covenants are breached going forward.
But we stay cautious for now. Management updated that all 8 lessees have been making full and prompt payments and no renegotiation attempts have been made till now. For 2Q09, the DPU guidance was maintained at 2.45 UScts. However, we still lack visibility about charterers’ finances, and CSAV’s recent restructuring efforts show that ship operators are not out of the woods yet. As such, we retain our HOLD call, while our DDM-based TP is revised down to S$0.48.
CCT – OCBC
Looking beyond the weak office market outlook
Wide tenant base mitigates tenancy risk. Tenancy risk for CCT is wellmanaged, with a wide base of 540 tenants. CCT’s maximum exposure to a single tenant is ~13% of its monthly gross rental income and this comes from RC Hotels. The top ten tenants contribute approximately 50% of monthly gross rental income. Other than RC Hotels and Standard Chartered Bank, the remaining tenants each contribute 5% of CCT’s monthly gross rental income.
Strong landlord-tenant relationship minimizes tenant turnover. CCT has maintained good relationship with its tenants. This is seen from the long term relationship between CCT and some tenants who have stayed with CCT since its establishment. Some tenants, such as Standard Chartered Bank, have also taken up long term lease contracts with CCT.
S$282.3m of gross rental locked in for FY09. CCT’s income visibility remains very healthy for FY09. At the end of FY08, CCT had already locked in 79% (~S$282.3m) of its forecast gross rental income for FY09. As prime and Grade A office average rents continue to decline, rental upside from lease renewals is expected to decline but the impact is mitigated by the small % of expiring lease in FY09.
An equity fund raising may be needed by 2011. While we do not foresee major issues with the refinancing of borrowings due in FY09 and FY10, chances of an equity fund raising appear to be higher in FY11 with the significant liquidity needs. Total borrowings due for refinancing in FY11 could increase to S$1,006m if convertible bonds holders exercise early redemption option. With the declining valuation of its properties, gearing level is expected to trend upwards and CCT may also have to consider equity fund raising to keep its gearing level in line with the S-REITs sector’s gearing level.
Go for the yield and assets; re-initiate with BUY. We advise investors to look beyond the weak office market outlook and focus on the quality of CCT’s assets and the DPU yield of CCT over the next 2 years. For FY09 and FY10, we still expect CCT to deliver DPU yields of 12.3% and 10.5%, respectively. Having a strong sponsor in CapitaLand could also provide support to CCT if there is any need for fund raising. We derive a RNAV estimate of S$1.06 per share for CCT and we peg our fair value estimate at S$1.06, which is at par to its RNAV. We re-initiate coverage on CCT with a BUY rating.
KREIT – DBS
Cloudy outlook
K-reits results were in line with expectations, with the effect of positive rental reversions offset by declining occupancy, as weak demand for office space amid rising supply dragged on rental rates and DPU performance. Office concerns have been well documented and share price appears to have largely factored in a deteriorating operating environment. While valuation is inexpensive at implied NPI yield of 6.8% and DPU yield of 12.4%, near term catalyst is lacking. Maintain HOLD with TP of $0.80.
1Q09 results in line. Kreit reported a 29% yoy rise in revenue to $14.8m, lifted by positive rental reversions vs a year ago. NPI and distribution income improved 19% and 38% yoy to $10.8m and $15.7m respectively, as the impact of higher property taxes was offset by reduced interest expense following its rights issue. However, quarterly operating performance was eroded by c9% as higher portfolio rents (+5.9% qoq to $8.06psf vs $7.61 psf in 4Q08) was offset by lower occupation of 95.8%. Both Bugis Junction and Prudential Tower saw take up moderating to 88-92%, and higher costs.
Challenging times. Looking ahead, Kreit’s strategy is to retain tenants and manage cost efficiently amid difficult market conditions. While its portfolio seems fairly resilient with a long WALE of 5.5 yrs and 28% of its leases on LT structures, maintaining occupancy would remain
challenging with new supply coming in over the next 2-3 years. Our assumptions of a 15% vacancy and 50% peak/trough rental declines till 2010/11 translate to an average DPU decline of 3% pa.
No near term visibility. At the current share price, valuation for Kreit is inexpensive with implied NPI yield of 6.8%. However, give the ongoing sector headwinds, we are hard put to find near-term re-rating catalyst and maintain our Hold call with a TP of 0.80.