Month: December 2009
FSL – BT
FSL Trust holding back US$200m notes issue
It says Dubai World fallout impacted fixed-income investor sentiment
FIRST Ship Lease Trust (FSLT) has put plans to issue up to US$200 million senior notes on hold amid poor investor sentiment in the wake of the Dubai World credit crisis.
FSLT had said, when it announced the notes issue last month, that the proceeds would be used to repay existing indebtedness, fund future vessel acquisitions and for its general corporate purposes.
However CEO of trustee-manager FSL Trust Management, Philip Clausius, yesterday said: ‘The start of the investor roadshow coincided with the outbreak of the Dubai World credit crisis. This impacted fixed-income investor sentiment, particularly in Asia and Europe.’
‘We could most likely have concluded this offering, but only on terms that would not have been in the best interests of FSLT unitholders. Since we have no external pressure, including that from our bank lenders, to conclude this offering, we have decided to suspend it for now. We will revisit it when market circumstances change,’ he added.
In its SGX statement, FSLT said that it has stable and predictable cashflow from its portfolio of long-term lease contracts, which has remaining contracted revenue of US$782 million as at Sept 30 this year. It does not have any outstanding capital expenditure that requires additional funding and it has no loan maturing before April 2, 2012.
A share placement in September raised some US$28.3 million for FSLT and the shipping trust at its third quarter results had said that it was evaluating a number of attractive acquisition-and-leaseback proposals which would enable the trust to further diversify its portfolio by investing in modern vessels with good quality counterparties.
The extra US$200 million would have come in handy to pre-pay loans and improve its cash position as well as take advantage of buying opportunities. However, these are not absolutely critical to FSLT’s business as it does not have newbuilds on order.
Another shipping trust, Rickmers Maritime Trust, however may be concerned over this development as it does have serious fund raising needs in the near future. With this being the first fallout in the local shipping finance sector directly blamed on the Dubai woes, some will wonder whether there are more lurking in the shadows.
Cambridge – Phillip
Business As Usual
The recent MIREIT saga came to an end as all the resolutions were passed during the EGM. According to the latest regulatory fillings, Cambridge Industrial Trust (CIT) has sold down its stakes in MIREIT from 26 million units to 13.31 million units. We believe that CIT has no intention of maintaining an interest in MIREIT. A recent update with management indicates that it is business as usual and it will focus on its original plan that was outline before the saga took place.
De-leverage. CIT current gearing is 42% and has total debt of $390.1 million. Management expects year-end valuation of the portfolio assets to remain constant and therefore should not affect gearing substantially. De-leverage strategy involves divesting non-core assets as well as the implementation of Dividend Reinvestment Plan (DPR) to retain cash and pay down debt. CIT has a target gearing in the range of 30-35%. No firm implementation date has been set yet, but the DRP program is slated to commence from 1QFY10.
Asset enhancement and acquisitions. Management is in talks with tenants on possible asset enhancement initiatives, however tenants are still cautious about the recovery at this stage and nothing has been carried out yet. On the acquisition front, management has not rule out making acquisitions in the next year.
Valuation and recommendation. In our opinion, the MIREIT episode has caused slight hiccups to the initial plan of CIT, but no real derailment. The underlying portfolio is still sound with high occupancy rate and tenants are paying their rents on time. The impact on CIT besides some bad presses is the financial impact to the bottom line. According to our calculations, we estimate that CIT would have incurred a loss
of approximately $2.3 million if it completely off-loads its holdings, which has a minimal impact on NAV. We make no change to our forecasts for now and maintain a Hold recommendation.
MI-REIT – BT
AMP wants to regain trust of MI-Reit holders
Medium-term focus will be acquisition of industrial property in S’pore, Japan
THE new co-sponsor of MacarthurCook Industrial Reit (MI-Reit) yesterday said that it will focus on regaining unitholders’ trust before embarking on new acquisitions, likely industrial properties in Singapore and Japan.
Simon Vinson, head of new business initiatives and Asian property at AMP Capital Investors, said that unitholders’ concerns raised at a tumultuous general meeting recently ‘will become front and centre in the way we will operate’.
Such concerns include not consulting unitholders early enough on a controversial recapitalisation plan and the real estate investment trust’s (Reit) own governance and investment processes, Mr Vinson told BT in an interview yesterday.
The rescue plan – approved by narrow margins at the meeting on Nov 23 – was presented to unitholders less than two months before the deadline for the Reit to meet $315 million in obligations.
Angry unitholders said that the deal diluted their holdings significantly and was too favourable to the new investors. Led by Cambridge Industrial Reit (CIT), which owned a close to 10 per cent stake, the unitholders mounted a week-long campaign to oust MI-Reit’s manager but this faltered when CIT said that its plan to take over as manager was blocked by the Monetary Authority of Singapore.
Yesterday, Mr Vinson said that AMP would focus in the short term on regaining investors’ trust by better managing the Reit, before thinking of fresh acquisitions.
While the Reit is now among the lowest geared among those listed in Singapore, the travails of the past year, particularly uncertainty over whether it could raise funds to keep it afloat, have depressed unit prices and raised distribution yields.
This would make yield-accretive acquisitions difficult, Mr Vinson admitted. ‘But the management team and sponsors are capable of showing investment performance that, over time, will bring the unit price up to net asset value,’ he said.
In the medium term, AMP will explore opportunities in industrial property in both Singapore and Japan, he said.
REITs – CIMB
Big caps grow expensive
• We downgrade the SREIT sector to Neutral from Overweight on a more negative view of sector heavyweights, CMT (fund flows away to CMA), CCT (negative rental reversions), A-REIT (falling industrial occupancy) and MLT (limited organic growth). Nonetheless, we believe that share prices have more room for appreciation as the sector P/BV of 0.83x remains below its mean level of 0.92x since inception (2002) till now, even after the sharp recovery from trough levels in March.
• Acquisitions and development projects will take centre stage in 2010. We believe that easy credit conditions coupled with recapitalised balance sheets and compressing dividend yields will revive acquisitions and project development in 2010. However, these will likely be less accretive than those in pre-Lehman times due to: 1) cash calls made in 2009 by a number of sponsor-backed REITs; 2) a more conservative outlook on asset leverage by REIT managers, which would result in a smaller quantum of acquisitions, or further equity-raising for acquisitions; and 3) insignificant spreads of asset yields over dividend yields, resulting in marginally DPU-accretive deals
• Asset inflation could lead to sector re-rating. An easing credit environment is drawing more institutional buyers of properties into the market. If the competition for investment assets intensifies, asset inflation is a possibility in the medium term.
• Negative reversions could set in. Most REITs will take time to catch up with market rents and occupancy due to standard leases set in place. We expect office, industrial business park and prime retail rents and occupancy to deteriorate further later in 2010.
• Suntec REIT our top pick for 2010. Our top pick for the sector is Suntec REIT for catalysts coming from the opening of two new MRT stations at Suntec City, and the Marina Bay integrated resort. Suntec REIT’s valuation of 0.65x P/BV is below the sector average of 0.83x, and also below its closest peer CCT’s 0.75x. However, 2010 dividend yields are higher than the sector’s 7.4% and CCT’s 5.8%.
• AREIT our top short. AREIT remains the most expensive REIT in the sector at 1.2x P/BV. We believe all the positives have been priced in. Downside risk is high as the attraction of low quasi-office rents in the Business Park and Hi-Tech segments gradually diminishes with a sharp fall in office rents.