Month: April 2010
StarHill Gbl – DBS
A landmark transaction
• Asset portfolio to grow to S$2.6bn post acquisition of 2 Malaysian malls
• Partially funded through new issuance of convertible preference units (“CPUs”)
• Accretion to earnings estimated at 6-13% in FY10-11F
• Maintain BUY, TP revised to S$0.73.
Adding Malaysia exposure in its portfolio. Starhill Global REIT (SGREIT) has signed an agreement to purchase Lot 10 and Starhill Gallery (located in central Kuala Lumpur, Malaysia) from Bursa-listed Starhill REIT at a cost of RM 1.03 b (S$450.1m). Upon completion of the transaction, SGREIT’s portfolio of assets will increase by 20% to S$2.6bn.
Issuing new convertible units. The transaction will be funded through an asset-backed securitisation structure, involving cash (31% of purchase price), debt (32%) and the issuance of new convertible preference units (“CPUs”) (39%). The CPUs, amounting to RM405 m (est. S$177m) will be paid an annual coupon of 5.65%, and convertible into new SGREIT units at a 30% premium to the last vwap upon listing of the CPUs. There is a moratorium of 3 years before the conversion, which will turn mandatory after 7 years.
6-13% accretion to FY10-11F distributions. Upon completion, we estimate distribution income accretion of c6-13% in FY10-11F. We have also accounted for the conversion of all of the CPUs in year 3 into new SGREIT units.
BUY, TP adjusted S$0.73. Maintain our BUY call, with adjusted target price of S$0.73 assuming the full conversion of the CPUs from FY13 after moratorium period. Further price catalyst in our view may come from: (i) stronger than expected 1Q10 results, and (ii) clarity of its refinancing plans for majority of its loans due in Sept 2010.
CCT – BT
CCT posts 19.7% higher Q1 distributable income
CAPITACOMMERCIAL Trust has posted a distributable income of $54.3 million for the first quarter of 2010, up 19.7 per cent from the same period a year ago.
Reflecting the resilience of its portfolio, committed occupancy rate rose to 95.1 per cent for the quarter from 94.8 per cent for the fourth quarter of last year. Its Grade A office committed occupancy rate also rose to 99.1 per cent from 98.7 per cent.
The office landlord’s distribution per unit (DPU) is 1.93 cents, a year-on-year decrease of 40.4 per cent from 3.24 cents in Q1 2009. On an adjusted for rights basis, DPU rose 19.1 per cent from 1.62 cents. However, there is no distribution payment this quarter as CCT distributes semi-annually, which will be in July.
Q1 gross rental income rose 7.1 per cent year-on-year to $93.6 million, while Q1 gross revenue rose 4.5 per cent to $101.8 million. Net property income improved 11 per cent to $77.6 million. Its total current assets stand at $401.6 million while its current liabilities are lesser at $313.1 million. Its cash and cash equivalents at the end of the period are $172.73 million, up from $70.49 million a year ago.
In addition, the repurchased convertible bonds due 2013 have been cancelled and the outstanding aggregate principal amount of convertible bonds due 2013 has been reduced to S$229.5 million.
Lynette Leong, chief executive officer of CCT Management, said: ‘The strong performance for this quarter is attributed to our good track record of proactive leasing, with the signing up of leases with positive rental reversions, and further strengthening building occupancies.’
She added: ‘Moreover, successful efforts in refinancing debt well ahead of maturity dates, lengthening the average debt maturity, diversifying the sources of funding, and keeping the proportion of secured debt low also boosted the bottom line.’
CCT shares closed two cents higher yesterday, at $1.16.
CCT – OCBC
Better-than-expected 1Q10 results
Better-than-expected results. CapitaCommercial Trust (CCT) reported its 1Q10 results which came in above our expectations. Net property income increased 11% YoY to S$77.6m, driven by positive rent reversions and lower property tax. CCT signed new leases and renewals of 144,373 sq ft in the last quarter and portfolio occupancy rate improved to 95.1% at end 1Q10. DPU of 1.93 S-cents has been declared for 1Q10, translating to an annualised DPU yield of 6.9%. This exceeds our estimate of 1.79 S-cents by 7.8%.
Further hint of divesting Starhub Centre for condominium redevelopment. There is no new update on Starhub Centre as the development plan is still pending government approval. Despite the increase in occupancy rates at most of CCT’s office buildings in 1Q10, occupancy rate at StarHub Centre had remained flat at 68.2% since the end of 2009. If CCT plans to divest Starhub Centre as an office building, achieving a higher occupancy rate for the building would help to secure a better price for the asset. However, by not doing so, we believe that this could be a further hint that the most likely outcome of the asset review would be a divestment of StarHub Centre for redevelopment into a condominium. Based on our estimates, CCT could potentially reap a gain of S$33.2m (S$0.01 per share) to S$93.9m (S$0.03 per share) from the divestment.
Managing refinancing through CB buyback. CCT had also announced that it repurchased a further S$125.5m of its convertible bond due 2013 for a consideration of S$135m, including accrued interest, and the outstanding amount has now been reduced to S$229.5m. This brings down its potential refinancing requirement in 2010, from S$1,025m at end FY09 to S$658m at end 1Q10. Refinancing for 2011 is making significant inroad and its average debt maturity to put has also increased to 2.1 years. After the bond repurchase and the recent issue of convertible bond, the gearing ratio will edge up marginally from 33.2% to 33.8%.
Fair value raised to S$1.26; Maintain BUY. We have adjusted our FY10 rental growth assumption from -15% to -10%. So far, Grade A office rents have held up better than non-Grade A offices. With the bulk of the FY10 expiring leases coming from its Grade A buildings, we believe that the negative rent reversion this year may not be as bad as we have expected earlier. However, we still hold a cautious view on the office market, given the upcoming supply of new office spaces. Our fair value, which is pegged at parity to RNAV, has now been raised to S$1.26 (previously S$1.19). With a potential total return of 16.4%, we maintain our BUY rating on CCT.
CCT – DBS
Within expectations
At a Glance
• 1Q10 results in line; positive yoy performance but slight dip qoq
• Office rents expected to have troughed but outlook on turnaround point mixed on large incoming supply
• Maintain Hold, TP at $1.23
Comment on Results
Within projections. CCT announced 1Q10 DPU of 1.93cts, up 19.1% yoy and +2.7% qoq, largely boosted by lower interest cost. The results were in line, representing 28% of our full year forecast. At NPI level, income fell 3% qoq to $77.6m on a 1.4% dip in revenue to $101.8m as well as a small hike in cost ratio. In terms of operations, occupancy rose marginally to 95.1% as CCT contracted or renewed 144373sf of leases with tenants from the banking and financial services, legal and real estate services sectors. As part of its capital management exercise, CCT also bought back $140.5m of its 2013 CBs, reducing the quantum to $229.5m.
Jury still out on office rent inflexion point. Management guided that demand for office space had improved and office rents may have reached a trough, although the timing and extent of recovery is still unclear due to the large 4.5m incoming supply. Our view is that office rents have reached a low and are likely to hover at the bottom until more of the new stock is digested. As a result, we expect negative reversions to kick in from 2H10 and 2011. This will put a drag on CCT’s earnings with 12% and 22% of its income due to be renewed this year and next.
Still awaiting asset review plan for Starhub Centre. Redevelopment of Starhub Centre is still awaiting govt approval. It has obtained outline permission to convert the building into a residential/ commercial property.
Hold call retained, TP $1.23. We believe share price catalyst could appear when the group announces further details on its portfolio review exercise, including acquisitions and plans for Starhub Centre. Balance sheet is healthy with gearing of 33.8% and debt maturity of 2.5 years. In the near term, DPU yields are expected to remain at 6.1-5.9% over FY10-11 on the moderated office outlook. Maintain Hold.
Shipping Trusts – OCBC
1Q10 results preview
1Q10 earnings should be fairly stable. We expect FSL Trust (FSLT) and Pacific Shipping Trust (PST) to release 1Q10 results next week, with Rickmers Maritime [RMT, NOT RATED] following later in the season. Earnings are likely to be fairly stable for the trusts and we expect FSLT to meet its guidance of 1.5 US cents DPU (flat QoQ), representing some 55% of cash earnings. PST paid out 43% of cash earnings in 4Q09, with cash used to repay debt and also retained for future acquisitions. We expect PST to retain this strategy and estimate a 1Q10 DPU of 0.80 US cents (-4% QoQ). RMT paid out 0.57 US cents in 4Q09 or 13% of cash earnings but said it could not give forward guidance for DPU because of ongoing discussions with lenders.
But what comes next is key. The most-watched event this time is likely to be how RMT addresses the maturity of a US$130m loan facility due later this month. Speculation is rife regarding its discussions on its US$918.6m in committed vessel purchases and on loan-to-value covenants. In response to a TradeWinds interview with Mr Bertram Rickmers, the Chairman of the RMT board (and of sponsor Rickmers Group), RMT announced that negotiations with its sponsor on its order book “have been positive”. What that means exactly and how it impacts unitholders remains to be seen. Positive developments here, especially in relation to the attitudes of RMT’s lenders, could uplift the broader sector.
Acquisitions, ahoy? RMT is not the only trust that has updates to give – FSLT, for one, has been sitting on the US$28.3m net proceeds from its Sep 2009 placement for about seven months now. We will be keen to get an update on how much closer it is to finding viable acquisition options to employ that cash effectively (so far, the larger unit base has not been offset by additional income or lower expenses). We also note that at this week’s EGM, a proposal to buy back units was passed successfully (after failing last year). How seriously the manager views this tool is another question mark, especially if that money could be used more productively – in our opinion – to repay debt or purchase vessels. PST’s manager has also been talking about acquisitions for a while – we are eager to hear if it believes if conditions are ripe to go a step further down this path, especially as distributable income continues to be retained. Maintain NEUTRAL view, with PST our preferred play.