Month: September 2009
FCOT – BT
FCOT in loan facility extension
IN a move to refinance the debt of Frasers Commercial Trust (FCOT), its trustee British and Malayan Trustees Limited yesterday entered into an agreement with lenders to extend a transferable term loan facility of $500 million for a term of three years.
This extended facility is part of $675 million debts facilities which FCOT’s manager, Frasers Centrepoint Asset Management (Commercial) Ltd, unveiled in June in a recapitalisation move for the real estate investment trust.
DBS Bank, OCBC Bank, Standard Chartered Bank and Commonwealth Bank of Australia, Singapore branch are lead managers for the $500 million facility.
The interest rate for this loan facility is the Singapore swap offer rate plus a margin of 2.65 per cent, excluding upfront fees. It will be secured by Singapore assets, namely KeyPoint, 55 Market Street, China Square Central and Alexandra Technopark.
The loan facility will be used mainly to repay the outstanding amount owed by FCOT on a loan note facility of up to $550 million that had been arranged by Commonwealth Bank of Australia, Singapore branch and CBA Asia Limited. The amount outstanding under the loan note facility is $475 million following the use of proceeds from a recent rights issue.
FCOT had received approval to acquire Alexandra Technopark in July from its sponsor, Frasers Centrepoint Limited (FCL), for $342.5 million. This acquisition will be financed by the issuing of convertible perpetual preferred units (CPPUs), which will entitle 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.
On Aug 26, Series A CPPUs were issued to FCL Investments Pte Ltd and FCL Trust Holdings (Commercial) Pte Ltd, as nominees of the vendor of Alexandra Technopark.
As at the end of March, FCOT had gross borrowings of $945.5 million, $624.5 million of which would mature in the second half of this year.
In June, FCOT announced its cash call for $214 million in a three-for-one rights issue.
After the completion of the rights issue, the issue of the CPPUs and the refinancing exercise, FCOT will have no debt maturing until 2012.
K-REIT – UOBKH
Office Market: Not Out Of The Woods Yet
Semblance of stability. Management has started to see signs of stability in the office leasing market. The freefall in office rents has abated. Tenants who previously wanted to release space back to K-REIT Asia (K-REIT) have retracted their requests. Management has seen more enquiries since Jun 09. Some of these enquiries have translated into actual commitment in Sep 09. Tenants have also renewed for longer lease terms as they find current office rents attractive. The gap between office rents at Raffles Place and business parks outside the central business district (CBD) has also narrowed. Management expects average rents for Grade A offices to level out at about S$7psf.
A fragile office market. We are not as sanguine. We expect the office market to remain fragile due to the supply of 8.0m sf coming on stream from 2H09 to 2013, representing 11.0% of total office stock. A massive 2.8m sf and 2.6m sf will hit the market in 2010 and 2011 respectively, compared with the average annual take-up of 1.3m sf for the past 10 years. An estimated 87.2% of the known supply is concentrated within the CBD at Raffles Place, Marina Bay, Shenton Way and Tanjong Pagar. Take-up for office space was negative 570,000sf in 1H09. Take-up is likely to remain in negative territory in 2H09 as there is usually a time lag between retrenchment exercises and the release of excess office space. We continue to expect average rents for Grade A offices in Raffles Place to slide further to S$6.00psf by end-10, representing a two-third correction from the last peak of S$17.90psf pm recorded in 3Q08.
Maintain BUY. K-REIT is our only BUY call among office REITs. Our target price for K-REIT is S$1.32, based on a dividend discount model (required rate of return: 8.25%, growth: 2.5%).
CDL H-Trust – DMG
Legs To Ride The ‘V’ Recovery
Best proxy to a multi-year tourism resurgence. We initiate coverage on CDL Hospitality Trusts (CDLHT) with a BUY recommendation and target price of S$1.80. We are sanguine that CDLHT remains the best proxy to a multi-year tourism resurgence that will take place next year. CDLHT is our top pick among the large cap S-REIT counters. Price target is based on a 9.3% cost-of-equity assumption and a terminal growth rate of 3%.
Supernormal visitor growth of 30% – a real possibility! The success stories of countries with similar service offerings reinforce our view that Singapore’s visitor growth will easily punch through the 15-20% level in the initial year of opening (possibly even 30%), with sustained 3-5% growth thereafter. Visitors are expected to extend their stay, leading to a 20-35% spike in visitor days in 2010. Our feedback from hotel operators indicates that pricing power will return when occupancies hover above 80%. We expect systemic occupancies to rise to 84% next year, with ARRs rising to S$250. We believe room demand will immensely overshadow the 16% new supply that is projected to come onstream in 2010.
Stock has outperformed, but still at mid-cycle valuations. We believe 2Q09 reflects the bottom of the earnings cycle for hotel operators, and a ‘V’ recovery will likely transpire beyond 2010, powered by the resurgence in tourism offerings. Despite surging from its S$0.43 March lows, we do not think stock price is fully reflective of the sated impact of the IRs. In the heydays of 2007-08, CDLHT traded at ~5% yield, below the current 7.2% level. We estimate FY10 DPU to spike 35% to 10.8¢, inching above the FY08 levels of 10.6¢.
Euphoric aura could see yields compress to 5%. We believe the stabilising global economy and the twin openings of the IRs will remain as euphoric events in 2010, providing sustained performance for CDLHT’s stock price. We suspect CDLHT could trade towards its heyday yields of 5%, implying a recursive fair value of S$2.15. Even at our DDM-TP of S$1.80, yields stand at 6%, a conservative peg in our view. CDLHT trades at 7.2% FY10 yield, which in our view suggests that the stock has further legs to ride the ‘V’ recovery.
Shipping Trusts – UOBKH
Share Prices of US Peers Rally 30-60% wow
US peers rallied 30-60% wow; CCFI rebounded 26% from trough. Share prices of Danaos Corporation (DAC US) and Seaspan Corporation (SSW US), US peers of the Singapore shipping trusts, soared 58% wow and 32% wow respectively. The China Containerized Freight Index (CCFI) has rebounded 26% from its recent trough of about 750-945.3. We have not yet seen an upturn in the share prices of Singapore-listed shipping trusts similar to the recent rally of their US peers.
Stock Recommendations
FSLT. FSLT recently raised S$42m via a private placement to fund acquisitions. Accretive acquisitions will boost its distributable cash. However, the trust may need to raise equity for its outstanding loan balance of US$400m due for bullet payment in 2012 and 2014, and this may lead to yield dilution. Thus, we maintain HOLD on FSLT but raise our fair price from S$0.62 to S$0.70 based on a higher container shipping sector
2010F P/B of 0.91x (previously 0.81x).
PST. We forecast PST’s 2009 and 2010 dividend yields at 11.7% and 9.3% respectively after adjusting for the reduction in the distribution payout ratio from 90% to 70%. The cash retained will be applied to finance acquisitions. Accretive acquisitions may drive a re-rating of the stock. Maintain BUY with a target price of US$0.37.
RMT. We reduce our fair price from S$0.76 to S$0.55 based on a lower 2010F P/B of 0.32x (previously 0.40x), a shade below US peer Danaos’ P/B of 0.54x, because RMT would have a similarly very high net gearing of 4.0x, This is assuming the availability of debt financing for the US$712m capex due in 2H10 relating to the purchase of four containerships to be chartered to Maersk. RMT also has a US$130m loan facility due in Apr 10. While our fair price for RMT is 43% above its current share price, we maintain our HOLD call.
RMT is trading at a very low FY09 P/B of 0.31x. Should the trust overcome its financial hurdles by refinancing the US$130m loan, and by securing funding for its newbuilds, we expect a re-rating. At this juncture, the management is still seeking solutions to its financial hurdles.
Fortune – JPM
Proceeding with acquisition and rights issue – ALERT
• FRT will proceed with acquisition and rights issue: All resolutions for the proposed acquisition of the three properties and one-for-one rights issue were duly passed at the EGM held on 11 September.
• One-for-one rights issue at HK$2.29: Book closure date for rights entitlement is set at 17 September 5pm. The commencement of “nilpaid rights” trading period is yet to be determined but is expected to be no later than 23 Sept.
• Under-gearing still better than over-paying: The three new assets would be acquired at an average net yield of 5.1%, which looks fair. We believe this acquisition is much better than previous acquisitions done by other REITs where the sponsor sells assets at a high price into the REIT and uses a combination of financial engineering and aggressive gearing to initially maintain a high yield –it only delays the pain of overpaying for assets. Fortune REIT’s proposed acquisition is simple and straightforward, though the gearing level might even be considered a bit too conservative, in our view. The blended yield post acquisition would be still be high at 7.5% for FY10E and 7.3% for FY11E. Theoretically, investors could gear up externally (and buy more of the REITs) to engineer a higher yield on equity, though it may not be a viable option in reality.
• Maintain OW, Jun-10 PT HK$3.4: In our previous note dated 24 Aug 2009, we had already incorporated the contributions from new assets and also the dilution from the rights issue. Our Jun-10 NPV post acquisition and rights issue is HK$3.4/share. We maintain our ex-rights PT at HK$3.4/share, which is on par with the new NPV. Our price target is based on a discount rate of 6.57% and LT growth rate of 0.4%. Risks to our PT include higher than expected vacancy rates and prolonged economic recession.