Month: May 2009
Fortune – BT
Fortune Reit Q1 DPU up 14.4%
HIGHER occupancies and rental rates, as well as the completion of asset enhancement works, drove first-quarter revenue for Fortune Reit up 10.4 per cent year on year.
Total revenue for the quarter ended March 31 grew from HK$152.4 million (S$29 million) to HK$168.2 million.
This lifted the distribution per unit (DPU) 14.4 per cent to 10.06 HK cents, up from 8.79 HK cents in Q1 last year.
Although the Reit expects 2009 to be challenging given the global financial and economic crisis, non-discretionary retail sales in Hong Kong still registered a growth for the first quarter and was less affected.
‘These results underscore the defensive nature of the Hong Kong suburban retail sector in general and Fortune Reit in particular,’ said chief operating officer Justina Chiu of ARA Asset Management (Singapore), which manages Fortune Reit.
‘The manager will continue to negotiate leases with tenants well in advance and will, at the same time, intensify marketing and promotion activities in order to assist tenants in keeping up their sales momentum,’ Ms Chiu added.
Fortune Reit, which has a portfolio of 11 retail malls in Hong Kong, saw higher occupancies and rental rates at City One Shatin Property, Ma On Shan Plaza and The Metropolis Mall.
Despite the financial crisis, occupancy remained solid at 95.5 per cent with passing rent up 3.6 per cent to HK$27.09 per square foot.
Completion of asset enhancement works at Waldorf Garden Property also contributed to revenue growth.
The Reit’s rental reversion remained healthy at 4.9 per cent being registered for renewals in the first quarter.
The quarter ended March 31 also saw a rise in net property income of 8 per cent from HK$114 million to HK$123.1 million.
Income available for distribution jumped 15.8 per cent to HK$82.8 million from HK$71.5 million.
Fortune Reit said it remains well positioned to weather the tightening of credit markets as one of the lowest geared Reits in the region at 26.6 per cent.
Its term loan of about HK$2.35 billion expires in June 2010 and borrowing costs for the period dropped 12.8 per cent year on year to HK$23.5 million.
Fortune Reit units closed trading six cents up at HK$3.11.
HWT – BT
Hyflux Water Trust distributable cash jumps 91% in Q1 to $3.4m
HYFLUX Water Trust (HWT), the first pure-play global water business trust listed in Asia, yesterday announced a 91 per cent year-on-year jump in distributable cash to $3.4 million for the first quarter ended March 31.
This translates into available distribution per unit (DPU) of 1.15 cents, which trustee-manager Hyflux Water Trust Management said is in line with HWT’s target DPU of 2.56 cents for the first half of 2009. HWT’s policy is to make distributions to unitholders on a half-yearly basis.
The increase in distributable cash was attributed mainly to newly constructed plants commencing operations and the addition of new Rofoar (right of first offer and refusal) plants acquired.
Total revenue for the three months dipped 2 per cent year-on-year to $14.05 million. This was due to a 30 per cent fall in construction revenue to $8.1 million.
Q1 saw a bottomline profit of $6.3 million, against $1.12 million for the year-ago period. The results included ‘other income’ of $4 million, comprising mainly unrealised foreign exchange gain.
Gary Kee, CEO of the trustee-manager, said: ‘We are pleased that HWT has demonstrated such resilient performance in a very difficult market. This is the result of the strong fundamentals of our business model and our continued proactive asset management to ensure sustainable distribution to unitholders.’
The trustee-manager said that despite the challenging global economic environment, the medium to long-term outlook for the global water sector, particularly in China, should remain strong. The credit facility of US$66 million is also not due for repayment till February 2011.
HWT units closed trading one cent up at 38 cents yesterday.
AREIT – JPM
Built-to-suit development for SingTel – a long-term accretive deal
• New built-to-suit development announced. A-REIT announced that it has secured from SingTel a built-to-suit development project of a 9- storey hi-tech industrial building. The estimated total investment for the building, land and equipment is estimated at S$175.4million and the project is expected to complete by 1Q2010. Upon completion, SingTel will lease the entire building for an initial tenure of 20 years with annual rental escalation, and an option to renew for a further 10 years on expiry.
• Fine-tuning our estimates. Upon completion, annual DPU accretion would be about S$0.28cents/unit based on management estimates, and we have therefore raised our DPU estimates from FY11E onwards by about 1.5 -2% p.a. Our FY10 estimate for gearing has also been increased to 38.7% to account for the additional borrowings.
• Long-term accretive deal, but cost of equity raised in the short run. Average yield on cost for the entire 20-year period is slightly over 10% according to management, but we estimate that the initial passing yield on cost would be lower at about 6.5%. Although gearing for A-REIT would increase by only 1% as a result of this transaction and the trust has a ready revolving credit facility to draw down, the incremental cost of debt and its implication on cost of equity would be higher than it appears under current credit environment in our view; and we see some short-term share price vulnerability as a result.
• We retain our Overweight rating on AREIT, with a reduced Dec-09 price target of S$1.65/unit (S$1.70/unit previously), based on our DDM valuation using 8.5% discount rate (8.2% previously). Key risks to our rating and price target include a worse than expected deterioration in operating fundamentals and a prolonged capital markets downturn leading to elevated costs of capital for A-REIT.
FCOT – CS
1Q09 results: below expectations; refinancing to conclude soon
● 1Q09 revenue and NPI were in line with our and consensus fullyear forecasts, while DPU was below our below-consensus forecast, due mainly to higher-than-expected trust expenses (legal and professional fees) and a S$0.5 mn realised loss on AUD forward contract undertaken to manage forex income exposure.
● Management further revalued downwards its portfolio of nine properties by 7.8% to S$1.53 bn to reflect deteriorating conditions. Gearing has risen from 54.4% to 58.3%, while interest coverage fell to 1.8x from 2.2x, though still meeting existing debt covenants.
● We expect management to conclude refinancing of its S$620 mn debt due this year soon, while balance sheet strengthening may require some equity fund raising or convertible preference issue.
● We cut FY09E income 2% on higher trust expenses, but raise FY10-11E income 3% from lower management fees on lower asset revaluations, and DDM-based target price to 18cts (from 16cts). While attractive at 20% FY09E yield and 0.2x P/B, we expect DPU to decline 46% to trough on falling rents and rising financing costs.
Results reflect weak conditions, loss of income support
Revenues fell 16% YoY to S$4.4 mn due mainly to the loss/reduction of income support at Central Park and KeyPoint, weakening of the AUD, partially offset by a stronger JPY. Occupancy fell to 88.9% from 94.6% mainly on the removal of the master lessee, who is in trouble at its Cosmo Plaza, Osaka and lower occupancy at KeyPoint. Financing costs rose 36% to S$13.2 mn increased debt margins under May 2008 debt extension.
Portfolio updates: first right of refusal on Canberra asset
Receivers and administrators have been appointed to the assets of Record Realty Trust (RRT), who is the other 50% joint owner to FCOT’s 50%-owned S$91 mn Canberra asset, Caroline Chisholm Centre (CCC). FCOT has the right of first refusal should they dispose of RRT’s indirect interest in CCC.
FCOT continues to explore divesting its stakes in Cosmo Plaza, Osaka and its 20.6% stake in Australian Wholesale Property Fund (AWPF). Cosmo Plaza saw occupancy fall to 23% due to master lessee, Restoration Asset KK surrendering the space and only 30% of the space has been re-leased.
AREIT – DB
AREIT announces S$175m devt project for Singtel
AREIT will be undertaking the build-to-suit development of a hi-tech industrial blg for Singtel. The est. invt cost is S$99.6m with a further S$75.8m for the installation of additional equipment. This brings AREIT’s devt pipeline to 4 projects amounting to ~S$334m. The blg is expected to have GFA of ~353,723sf upon completion in 1Q10. Singtel will enter into an agreement to lease the devt for an initial tenure of 20 years with annual rental escalation and option to renew for a further 10 years on expiry.
This devt is DPU accretive, with pro-forma DPU accretion of 0.28cts (no comments on the yield; we estimate ~8-8.2%) and 2% net profit contribution, assuming fully debt funded and held for the whole of FY09E. The stability of the long lease, high credit quality of Singtel and absence of leasing risk could justify a tighter yield. It has commented that it may fund the devt by debt and/or equity. AREIT currently has 51% of unutilized bilateral banking credit facilities of S$1,120m and may issue notes from its recently established S$$1bn MTN prog Gearing could potentially rise to around 37.4% (fr 35.5%) assuming full debt funding.
AREITs development activities provides a competitive advantage in delivering DPU growth even in the absence of open market acquisitions. It has historically achieved avg 35% value accretion upon completion (although this is unlikely to be achieved for this transaction), and this may offset book value erosion from potential revaluation deficits. We maintain our Buy with TP of S$1.80. AREIT is currently yielding 9.5% for FY10E.