Month: October 2009
FSL – OCBC
Guides for 1.5 US cents 4Q DPU
Results in line. FSL Trust (FSLT) posted US$24.6m in revenue, up 4% YoY but marginally down 0.9% QoQ. Net cash generated from operations of US$17.6m rose 11.5% YoY and 3.1% QoQ. DPU, however, fell 50.8% YoY and 38.8% QoQ to 1.5 US cents. This was primarily because of the lower payout policy as well as the first effects of dilution stemming from the recent placement. Cash retained for the quarter has been used to prepay loans. Note that 1.27 US cents of the DPU amount has already been declared for the pre-placement units in September. All units will enjoy the outstanding 0.23 US cents amount.
Stitching up the balance sheet. FSLT has had a busy 3Q09. First, it secured loan-to-value covenant waivers from creditors that lower the required market-value-to-loan coverage from 145% to 100% for a two year period. In return, FSLT shifts away from a bullet repayment structure and begins repaying US$8m in loans per quarter. Its cost of debt is also higher. Second, FSLT raised US$28.3m (net) through a placement of new units. The proceeds are earmarked towards acquisitions. These steps coupled with the already enforced lower payout policy coalesce into a strategy of “defensive to be offensive”, marking an important turning point in FSLT’s business model. Moreover, the planned asset buys will give the manager a chance to demonstrate the 1) quality of counterparty; 2) asset yield; and 3) lease structure available to FSLT.
Guidance surprises for 4Q DPU. FSLT has guided for a 4Q DPU of 1.5 US cents or flat QoQ. This is almost 5% higher than our estimate of 1.43 US cents, which was driven by the time lag between the dilution from the placement and the utilization of the proceeds. While we believe this time lag still exists, FSLT’s guidance suggests it has enough surplus cash that was retained in previous quarters to fill any shortfall. In addition, our estimates assume that any acquisition is not completed until 1Q10. If FSLT is able to move faster, early contributions from new vessels could also support the gap.
Still our top pick. Now that the immediate balance sheet overhang has been addressed, we believe our FY10F yield estimate of 14% is fairly defensible. Key risk remains counterparty health in a weak shipping
environment. Nevertheless, FSLT is our top pick in the shipping trust sector for its diversified vessel portfolio as well as its newly restructured business model. Maintain BUY with S$0.72 fair value.
CMT – OCBC
AEI engine re-ignited
Results in line with expectations. CapitaMall Trust reported its 3Q09 results and they were in line with our expectations. Gross revenue increased by 7.5% YoY and 0.6% QoQ to S$129.7m, driven by the acquisition of Atrium and completion of asset enhancement initiatives (AEI) at several malls. Net property income was up by 8.8% YoY and 0.8% QoQ at S$94.5m. Portfolio occupancy rate remained strong at 99.6% at end-3Q09 and CMT also managed to achieve better rental reversions from new and renewal leases in 3Q09. DPU of 2.35 S-cents was declared for the quarter.
Consumer spending outlook remains cautions. Shopper traffic at CMT’s retail malls declined by 3.2% YoY and 2.4% QoQ in 3Q09, which was partly attributable to the opening of new malls like ION Orchard. As such, gross turnover of CMT’s tenants declined by 2.5% YoY and 0.5% QoQ in 3Q09. There is still no strong pick up in consumer spending in 3Q09 as majority of the retail trade categories operating in CMT’s malls are still seeing negative growth in gross turnover for the year to date. Slow recovery in consumer spending is likely to cap any rental increase going forward.
Restarting the AEI growth engine. Nevertheless, growth could still be sustained by AEI and reconfigurations, which had been the key DPU growth driver since IPO. CMT has proposed to build a new underground link connecting Raffles City to Esplanade MRT Station, which is expected to open in 2Q/3Q 2010. This project is expected to cost S$33.23m and generate incremental value of S$10.94m to CMT. Expected completion date for this project is in 4Q 2010, after which CMT still has a pipeline of AEI that will follow through – Atrium and Jurong Entertainment Centre.
Fair value raised to S$1.69; maintain HOLD. We are now raising our fair value of CMT to S$1.69 (previously S$1.53) after adjusting our retail rent growth expectations to 0% for FY09 and FY10. Our FY09 and FY10 DPU forecasts have also been raised marginally to 8.98 S-cents (previously 8.95 S-cents) and 9.28 S-cents (previously 9.1 S-cents), translating to DPU yield of 5.2% and 5.4% respectively. Growth outlook is more positive now, with new AEI coming up. Opportunities for acquisition are also opening up, with HDB currently in search of a potential buyer for Clementi Mall, which has a suburban catchment and could be of interest to CMT. We maintain our HOLD rating on valuation ground but will turn buyer at prices below S$1.60.
FCT – DBS
Good things are worth waiting for
At a Glance
• Results are in line with estimates
• Catalysts in sight.
• Maintain BUY, TP S$1.34, prospective 6.5-7.3% yield
Comment on Results
Ending the year well. 4Q09 results were in line with our estimates. Gross revenues and net property income were higher by 13% yoy and 25% yoy to S$24.8m and 17.6m respectively. The increase was mainly attributed to the improvement in revenue generated from Northpoint upon the successful completion of its enhancement works. Distributable income came in at S$12.8m ( 0% yoy) , translating to a DPU of S$2.04 Scts.
FCT recorded an upward revaluation of $37m even with higher cap rates (+0.25-0.75%) used by its valuers, highlighting the strong performance of its underlying assets.
Financial metrics are strong. Gearing remained relatively low at 29.9% with a healthy interest cover of 6.12x. NAV per share remained steady at S$1.22.
Catalyst for growth- acquisition. Looking ahead, other than organic growth drivers from rental reversions and contribution from Northpoint. We believe that further catalysts for growth will derive from their planned acquisition of Northpoint II and Yewtee Point properties which are both trading at almost full occupancy. This in our view, should address FCT’s current size and liquidity constraints. We have estimated a acquisition size of S$300m at 7% yield funded by a 30/70% Debt/Equity ratio in our numbers.
Recommendation
Maintain BUY, TP S$1.34. With potential catalysts in sight, we continue to like FCT as a good proxy into Singapore’s sub-urban retail sector offering a clear expansion pipeline of quality retail assets. FCT currently offers a prospective FY10-11F DPU of 6.5-7.3%.
a-iTrust – DBS
Simply Outstanding
• Results above expectations
• Attractive growth pipeline – 35% portfolio NLA growth over 2 years
• Buy for strong growth prospects, TP S$1.03
Results above expectations. Gross revenues were in line with expectations at S$30.4m (+13% yoy, 3% qoq) as a result of stable operational performance. The outperformance was due to higher than expected net property income (NPI) margins- 63% vs our estimated 57%. This was mainly because of lower operational costs through repackaging and renegotiation of its maintenance/security contracts and lower utilities expenses from lower oil prices. Distributable income came in at S$14.1m (+3% yoy), translating to a DPU of 1.85 Scts. For 1H10, AIT delivered a DPU of 3.91 Scts.
Moving NPI assumptions higher. We are adjusting our NPI margins higher to take into account the better than expected performance. As such, FY10F-11F DPU forecasts are adjusted upwards by 22% and 14% respectively.
Clear growth pipeline. Development of its 3 properties remains on track for completion by 2011, which will expand its portfolio by about 35% and result in a strong DPU CAGR of 9% over the next 2 years. In addition, its low gearing of c.13% as of 1H10 provides the trust with cS$180m (till 35% gearing limit) for opportunistic acquisitions.
Buy for growth, TP S$1.03. We find a-itrust’s DPU CAGR of 9% over FY10-12 to be attractive. In addition, opportunistic acquisitions that the trust could undertake, which are currently not factored into our forecasts, will remain further upside catalyst for stock price performance. Upgrade to BUY.
CMT – CIMB
High capex needs
• Maintain Underperform; target price raised to S$1.74 (from S1.54). 3Q09 results were in line with Street and our expectations. Revenue was up with increased contribution from more assets. We remain confident in the resilience of its suburban assets, but expect high capital expenditure for Jurong Entertainment Centre and Atrium@Orchard to strain distribution growth in the medium term. High capex needs and higher-than-peers valuations cause us to maintain our Underperform rating.
• DPU in line, despite retention of S$2.5m. YTD DPU of 6.45cts forms 75% of our full-year forecast. Distributable income of S$74.9m was up 23% yoy on contributions from Atrium@Orchard, the completion of asset enhancement work at Sembawang Shopping Centre and moderate growth (1.8%) in renewed rentals. This excludes S$2.5m of distributable income received from CRCT retained for distribution in the last quarter. (YTD, CMT has retained S$7.3m, which it has committed to distribute by 4Q09.) Nonetheless, DPU for 3Q09 (2.35cts) was down 35% yoy due to increased units after its rights issue.
• Reducing lumpiness in debt expiry, before acquisitions. The credit market is improving. Management says there have been increasing offers for longer debt tenures ranging from five to 10 years vs. only three years earlier. Indicative spreads are 175bp (5-year debt) and 210bp (10-year debt). CMT believes that its overall cost of debt will remain stable, with expectations of declining loan spreads offsetting a rising SOR.
• We raise our growth assumptions for 2009 (from no growth to moderate) for CMT’s key assets, impressed by its ability to achieve positive rental reversions. We are also assuming: 1) 20% growth for its hotel business in Raffles City in 2010, in line with our bullish expectations for CDLHT; and 2) much stronger contributions from CRCT in view of its positive YTD performance. Our DPU estimates consequently rise by 2-8% for 2009-11. Rolling our target price forward lifts our DDM-derived target price (discount rate 8.4%) to S$1.74 (from S$1.54).