Month: July 2009
FCOT – BT
FCOT gets nod for rights, property buy
ALL resolutions at Frasers Commercial Trust’s (FCOT) extraordinary general meeting, including its proposal to raise $214 million in a three-for-one rights issue and the acquisition of a property from its sponsor for $342.5 million, were passed by unitholders yesterday.
This confirms the $675 million in loans which FCOT earlier said it had secured from a consortium of lenders, on the condition that shareholders approved its proposed recapitalisation exercise.
The new loans, and proceeds from the rights issue, will be used to refinance a significant portion of FCOT’s existing debt, including all debt maturing this year, FCOT said in its June 30 announcement of proposed recapitalisation measures.
The rights issue had been widely expected as the trust’s gearing had risen to 58 per cent at the end of Q1 2009. The real estate investment trust (Reit) had gross borrowings of $945.5 million as at March 31, $624.5 million of which will mature in the second half of this year.
Showing its support, FCOT’s sponsor Frasers Centrepoint Limited (FCL), which has a deemed stake of 22.2 per cent in FCOT now, said that it would take up its entire pro rata entitlement of the rights units and is willing to subscribe for up to 32.7 per cent of all of FCOT’s rights units.
Unitholders’ approval yesterday confirmed that FCOT would buy Alexandra Technopark from FCL and pay for it by issuing convertible perpetual preferred units entitling FCL to a distribution of 5.5 per cent a year. FCL will also undertake the master lease for the property for five years, giving FCOT an annual rent guarantee of $22 million.
At the EGM, the shareholders also approved an amendment to expand FCOT’s current investment policy, allowing it to invest in real estate assets located in the Asia-Pacific region used for commercial purposes.
CCT – BT
CCT distributable income rises 33.2% for Q2
Trust will pay unitholders DPU of 3.33cents for first half of this year
CAPITACOMMERCIAL Trust (CCT), one of the island’s biggest office landlords, has posted distributable income of $48 million for the second quarter ended Q2 2009, up 33.2 per cent from the same year-ago period.
For the first half of this year, the trust will pay unitholders a distribution per unit (DPU) of 3.33 cents (adjusted for its recent rights issue). On an annualised basis, the payout works out to 6.72 cents, reflecting a distribution yield of 7.72 per cent based on yesterday’s closing price of 87 cents.
Q2 revenue rose 34.4 per cent or $25.6 million year-on-year to $99.97 million, due mainly to the acquisition of One George Street and Wilkie Edge as well as higher rental income due to positive rent reversions. Net property income improved 42.2 per cent to $73.3 million.
First-half gross revenue of $197.4 million was 35.6 per cent above that in the same period last year. CCT achieved net property income of $143.2 million in H1 2009, around 42 per cent higher than the same year-ago period. More than half of this increase came from acquisitions and the rest from organic growth.
The H1 2009 net property income was 4.3 per cent above the trust manager’s forecast, due largely to higher contribution from Capital Tower, 6 Battery Road, Starhub Centre and Market Street Car Park and the 60 per cent interest in Raffles City, offset partly by lower contribution from One George Street, Robinson Point, Bugis Village and Wilkie Edge. The trust also benefited from lower property tax, utilities and maintenance expenses. As well, borrowing costs were $14.1 million or 22.4 per cent lower than projected due to lowering borrowings and lower average cost of funds than forecast.
Of the $804.2 million net proceeds raised under CCT’s recent one-for-one rights issue, $664 million were used to repay part of CCT’s borrowings on July 3. Following this, gearing has been trimmed to 31 per cent. CapitaCommercial Trust Management Ltd said it can use up to $140 million of the remaining rights proceeds to repay much of the $235 million borrowings due next year.
In addition, the trust has an untapped balance of $665 million from its $1 billion multicurrency medium term note programme and about $3 billion worth of unencumbered properties – giving it enhanced financial flexiblity.
With its balance sheet bolstered from the rights issue, the immediate priority for CCT going forward is to ‘continue to focus on strengthening our fundamentals through astute asset management and prudent capital management to entrench CCT’s competitive edge’ said CapitaCommercial Trust Management Ltd’s (CCTML’s) CEO Lynette Leong.
In May and June this year, renewals and new leases for nearly 140,000 sq ft or 4.1 per cent of the trust’s portfolio net lettable area were inked at rental rates 45 per cent above the previous rent levels for the space involved on a weighted average basis.
As at end-June 2009, 92 per cent of this year’s forecast gross rental income has been locked in with committed leases.
Analysts expect challenging times ahead for office landlords like CCT amidst the massive new office supply to be completed in the next few years from a slew of projects, including Marina Bay Financial Centre, Ocean Financial Centre and 50 Collyer Quay.
However, Ms Leong argued that there is still possibility of positive rental reversion for CCT given that the average monthly passing office rent for its portfolio of $8.14 per square foot as at Q2 is below the average monthly market rental values – of $8.60 psf for prime office space and $10.15 psf for Grade A space as at Q2.
Shipping Trusts – BT
Eyes on shipping trusts’ results
FIRST Ship Lease Trust (FSLT) may have set the wheels of an inevitable slide in the fortunes of the shipping trusts for the rest of the year in motion with its downward revision of distribution per unit (DPU) on Tuesday.
The other two SGX-listed shipping trusts, Pacific Shipping Trust (PST) and Rickmers Maritime, are due to report their second quarter results today and in early August respectively. The outlook for the shipping sector in general and the shipping trusts specifically has been deteriorating over the past quarter.
FSLT cited a change in policy to repay more debt faster as the reason for reducing its DPU from the third quarter onwards. Both FSLT and Rickmers have been hit by loan-to-value covenant breaches in recent months.
FSLT is planning to use around half of its free cash flows to prepay loans, which should ease its woes with the banks. ‘We understand this new guidance is driven by discussions with lenders. We expect loan-to-value covenant concerns to become a non-issue once these discussions conclude,’ said OCBC Investment Research in a report released yesterday.
Analysts seem to be looking more kindly at FSLT in the wake of its new policy. ‘A consolation – in our opinion, this is finally a realistic number,’ added OCBC in its report where it rerated FSLT to a buy from a hold with a fair value of 76 cents.
OCBC went on to explain that ‘right since we initiated coverage over a year ago, we have been saying the trust’s aggressive payout was unsustainable’.
‘With this new approach, FSLT now looks more like a viable long-term investment vehicle for serious shipping trust investors,’ it concluded.
Rickmers is the next trust likely to face similar issues, and may even be in a slightly worse position because it has new vessel deliveries with unsecured financing coming due. ‘Funding risks are high with a US$130 million facility due next year as well as unfinanced capital expenditure of US$712 million,’ said DnB NOR.
SIAS Research, however, offered some hope for Rickmers by suggesting that Rickmers’ sponsor Rickmers Group will provide support with either financing or helping to negotiate postponement of the deliveries.
OCBC, however, was not as benign. In an earlier report it said: ‘We think the Q2 DPU decision may be driven by conflicting forces: it may make sense to cut or freeze distributions entirely to save cash to fund obligations and to appease lenders. But the cash saved is small relative to what is needed.’
Against this backdrop, PST looks the most stable relatively. The trust’s sponsor is locally-owned container line Pacific International Lines and it has no loans coming due in the next five years. It has also fully financed all its vessels and has no committed capex in the near future. The trust has a very conservative acquisition policy that should put it in a good position in the troubled times ahead.
CCT – OCBC
Consistently outperform
Results were above expectation. CapitaCommercial Trust (CCT) reported a set of good results that exceeded our expectations. Gross revenue increased by 34.4% YoY and 2.6% QoQ to S$100m and the increase came from the acquisitions of One George Street and Wilkie Edge and also positive rent reversions. Increase in operating costs was partly mitigated by the lower property tax. A loss of S$684.8m was recognized as a result of the downwards revaluation of its investment properties, which had already been announced during the Rights issue and has no impact on cashflow. As a result, a loss of S$636.1m was
recognized in 2Q09 but distributable income to unitholders grew by 33.2% YoY and 5.8% QoQ to S$48m.
Good operating performance. Operating performance in 2Q09 remained encouraging. CCT signed new leases and renewals for 139,380 sq ft (4.1% of NLA) of spaces and achieved new rents at 45% higher than previously signed rents on aggregate. While this was weaker than that achieved in 1Q09, it is still a good achievement, considering the fact that average Grade A office rent had fallen by 17.5% QoQ in 2Q09. Even though CCT’s portfolio occupancy rate had fallen from 96.7% in 1Q09 to 96.2% in 2Q09, this remained higher than market occupancy rate.
DPU of 1.71 S-cents for 2Q09. DPU of 1.71 S-cents has been declared for 2Q09, translating to an annualized DPU yield of 7.9%. Together with the DPU from 1Q09, unitholders will receive a semi-annual payout of 3.33 S-cents for 1H09, after accounting for the dilution from its Rights issue. The Rights units are also entitled to the DPU declared in 1Q09.
FY09 DPU forecast raised to 6.4 S-cents. We are now raising our FY09 DPU forecast by 5.3% from 6 S-cents to 6.4 S-cents after taking into consideration better-than-expected rent reversions in 2Q09. Our new forecast translates to a DPU yield of 7.3% for FY09. Our FY10 DPU forecast has also been raised by 10.5% from 5.4 S-cents to 5.9 S-cents.
Fair value raised to S$1.07; Maintain BUY. Our fair value of CCT has now been raised to S$1.07 (previously S$0.96), which is pegged at par to our RNAV estimate. While the office sector continues to face oversupply issues, we expect CCT to outperform its peers on the operating aspects, given its strong track record. We believe that this will be a justification for the valuation premium of CCT over its peers. We maintain our BUY rating.
FCT – DMG
Boring But Defensive
3QFY09 results in-line with expectations. FCT reported a 3.2% YoY gain (+4.3% QoQ) in 3QFY09 DPU to 1.94¢. Annualised DPU of 7.3¢ came in slightly ahead of our forecast but in-line with consensus. FCT will trade ex-3Q09 distribution on 30 Jul 2009. Price target raised to S$1.17 (S$0.83 previously) to reflect a lower cost-of-equity assumption of 7.5% (9.5% previously) and terminal growth rate of 1% (nil previously).
Who says boring is bad? Apart from its resilient suburban portfolio, FCT stands out among the S-REITs as one of the least aggressive in terms of acquisitions. On hindsight, we think management has been among the most effective in terms of preserving the stock’s theoretical valuation through its
strong asset enhancement initiatives and cautious acquisition stance. With that, FCT continues to boast commendable financial credit metrics and a strong
balance sheet, which does not warrant any dilutive equity capital raising in the foreseeable future.
Resilient portfolio with limited downside. At current prices, CCT offers investors a dividend yield of 7% for FY09 and 7.2% for FY10. Causeway Point and NorthPoint, which contributes to 92% of NPI, are suburban malls which are resilient even during periods of recession. FCT has a strong balance sheet with gearing of 32.7% and interest cover of 4.5x. As all acquisitions are put on the backburner, there is no need for any equity raising in the near-term.
Low beta and high earnings resilience justify lower COE assumption. Like most REITs, FCT has risen sharply (+75%) since Mar 09, providing a forward
yield spread of 470bps above risk-free instruments, 110bps above its historical 360bps average. Despite the sharp increase, we think a forward yield of 7.2% continues to underscore our BUY justification on the counter. This is in view that FCT has one of the lowest betas (0.75x) among S-REITs, which typically average 1.1x. The relative stability of the stock price justifies a lower cost-ofequity assumption, hence higher theoretical fair value. Stock still undervalued at current levels. Trade stock to S$1.17 (~6% yield).