Month: May 2010
CMT – DB
DB Access Asia Conference 2010 Highlights
Improving operating environment; positive outlook. The operating environment for retail has improved amid the strong economic recovery, translating to a 0.9% YoY rise in shopper traffic and 5% increase in gross turnover. Rental renewal rates in 1Q rose 6.2% over preceding rents (vs 3.4% in 4Q09 and 2.3% in 3Q09). More trade categories are doing better, with 9 out of 18 trade categories reporting a YoY rise in gross turnover compared to just 4 in 2009. Mgmt expects CMT to benefit further from the growing trend in tourist arrivals.
Focus on capital management. CMT has been proactive in capital mgmt and is looking to extend and stagger its debt maturity. It has already addressed debt refinancing for 2010 partially through the recent issue of 5-year and 7-year MTNs (S$200m). In April it issued US$500m 5-year MTNs which will fully meet the balance of 2010 refinancing requirements and the acquisition of Clarke Quay. Pro-forma gearing of 34.7% remains conservative.
AEI and acquisition growth engine reignited. Ongoing AEIs are on track with 70% of new NLA in B1 & B2 Raffles City already committed ahead of its completion end this year. For JEC, construction contract has been awarded below initial budget on track for completion in early 2012. CMT is also constructing a new 2-storey F&B annex block in Junction 8 (3,500sf) and will reconfigure some retail units in Tampines Mall, expected to be completed by end this year. The acquisition of Clarke Quay has also been approved, allowing CMT to leverage on the rising trend in discretionary spending with % of revenue from discretionary spending rising from 20.9% t0 25.1%. Gross revenue locked in for FY10 has exceeded 88% of FY09’s.
FSL – OCBC
Dragged back into uncertainty
Vessel re-delivery. FSL Trust’s (FSLT) charterer Groda Shipping recently requested FSLT to take re-delivery of two of its product tankers Verona I and Nika I as Groda does not intend to continue to make full charter payments. To recap, both vessels are under a seven-year bareboat charter agreement fixed at US$20,700/day each until Nov 2014. For the month of May 2010, Groda has made full payment for only one of the two vessels. It has also told FSLT that from June 2010 onwards, full payments should not be expected for either vessel. The charter agreement was structured with a cash security deposit of US$3m/vessel (covering about five months of charter revenue) and an assignment of the long-term Contract of Affreightment (CoA) between Groda and OJSC Rosneft Oil Company, a Russian state-controlled energy company.
What happens to DPU? FSLT said it was exploring legal and commercial options, and that “best efforts will be made to ensure the uninterrupted operation of the vessels”. FSLT has the option to either continue the CoA with Rosneft (terms not disclosed) or re-deploy the two vessels elsewhere. The end result could potentially be at a lower rate than before. The two vessels contribute roughly 15% of total revenue. In our view, FSLT may be able to meet its DPU guidance for 2Q10 with cash reserves and the vessel deposits. However, DPU guidance for further quarters will depend on where the two vessels are employed and at what terms. Note that FSLT has to pay out US$32m (roughly 50% of cash earnings) in loan repayments every year during the covenant waiver period. The balance is utilized towards distributions.
Contagion key concern. Our key concern is what the redelivery means for the rest of FSLT’s product tanker portfolio (26% of total revenue including Groda). While Groda’s thought process is unknown, it seems to have found it more profitable to walk away from the deal (and the US$6m deposits) than to continue with the charter agreements. FSLT has always touted its focus on risk management and current events may be a good test of that focus. On a positive note, we understand from the manager that this development does not impact FSLT’s loans. Still, any reduction in revenue could affect FSLT’s plans to raise unsecured debt. We reduce our fair value estimate from S$0.59 to S$0.48 (which assumes a slight negative drag on cash earnings from the two vessels and increases our discount to FCFE value from 20% to 25%). Maintain HOLD.
LMIR – OCBC
1Q10 misses the mark as rental guarantees expire
1Q10 results below expectations. LMIR Trust reported 15.7% YoY and 3.4% QoQ gains in 1Q revenue and net property income to S$21.6m and S$20.3m respectively, primarily due to the strong Indonesian Rupiah (IDR) against the Singapore Dollar (SGD). By our estimates, revenue and NPI were slightly negative to flat YoY and QoQ in IDR terms. Revenue and NPI missed our estimates by 8.9% and 7.6% respectively. Meanwhile, distributed income fell 11.5% YoY but rose 3.5% QoQ to S$12.9m or 1.20 S cents per unit. We believe this is due to the appreciation in the IDR, as the hedged rate on distributions is significantly higher than the physical rate. Consequently, LMIR booked a realized (cash) forex loss this quarter of S$1.7m versus a loss of S$0.9m in 4Q09. DPU was within 5% of our expectation of 1.26 S cents.
Mall occupancy falls 2.2ppt versus 31 Dec to 93.8%. Malls such as The Plaza Semanggi (the second largest income contributor among the retail malls), Bandung Indah Plaza (third largest contributor) and Ekalokasari Plaza recorded occupancy declines of 600 basis points, 470 bps, and 820 bps respectively. The manager attributed the occupancy declines (-220 bps overall) mainly to the expiry of rental guarantees, granted by the vendor at the time of LMIR’s IPO, on spaces that had undergone extensive asset enhancement. After including temporary leasing and new leases committed by way of signed letters of intent, occupancy at Mar 2010 is 96% (flat). The manager said that with improving sentiment, it continues to receive various leasing enquires for vacant space. It is also re-mixing its tenant profile as it positions the portfolio for a more favorable retail climate.
Easing earnings estimates slightly. LMIR re-iterated that while the retail property market might start to benefit from a strong macro environment, LMIR will not see any “material benefit” in 2010 as “the portfolio has a very defensive position with very low upcoming expiries and already high occupancy levels”. The REIT manager said it continues to source for new acquisitions to take advantage of its low leverage of 10.2% debt-to-assets. We are now factoring in lower occupancy assumptions for FY10 and FY11. Our revenue estimates decline 2.7% and 3.7% for FY10-FY11F. In line, we adjust our DPU estimates for FY10-FY11F down by 3.3% and 4.3% to 5.0 S cents and 5.2 S cents respectively. Our fair value estimate, at a 20% discount to SOTP value, declines to S$0.55 from S$0.59 previously. With a 23% estimated total return, we maintain our BUY rating.
PLife – DBSV
Low beta play with growth
At a Glance
• 1Q10 DPU of 2.07 Scents (+9.4%) within our expectations
• NPI growth (+13.4%) driven by 8 nursing homes acquired in Nov’09 and higher rentals from Singapore hospitals
• Refinanced S$34m loan due 2H10 with S$50m 3-yr FRN
• Low beta play with room for growth; Buy, TP: S$1.51.
Comment on Results
1Q09 within expectations. PREIT’s 1Q10 DPU of 2.07 Scts (+9.5% yoy; 1% qoq) was within our expectations. Gross revenue grew by 14.1% to S$18.6m, largely from additional contribution from the 8 nursing homes in Japan acquired in 4Q09 (S$1.8m) as well as higher rental from Singapore hospitals, which had an upward rent revision by 4.36% (CPI+1% formula) in its Yr 3 of lease from Aug’09. NPI margin fell marginally to 92.3% arising from expenses related to the 8 new nursing homes. As a result, NPI grew by 13.4% to S$17.3m.
Issued S$50m FRN at 1.05%+6-mth SOR. PREIT has, on 23 Mar, issued S$50m FRN due 2013 at an interest cost of 1.05%+6-month SOR. Majority of the proceeds were used to repay its S$34m loan due in 2H10. Gearing stands at 28.2%, at an effective all-in borrowing cost of 3.06%.
Recommendation
A low beta play… We like PREIT’s defensive attributes with 89.8% of total portfolio having a downside revenue protection and 98.1% having rent review provision. General expectations that inflation could quicken along with the robust economic recovery bode well for PREIT’s Singapore hospitals arising from the CPI+1% formula.
…with room for growth through acquisitions. Buy, TP: S$1.51. PREIT has debt headroom of S$234.6m before reaching 40% gearing, which could be utilized for accretive acquisitions. We see Japan as a key possibility given its presence there. We adjusted our DCF-based TP slightly up to S$1.51 (WACC: 6.6%, t: 2%) as we fine-tuned our assumptions from its existing Japanese assets and lower interest costs. Our FY10F DPU of 8.3 Scts equating 6.3% yield, before any future acquisitions.
PLife – Phillip
1QFY10 Results
• 1QFY10 revenue of $18.6 million, net property income of $17.2 million, distributable income of $12.5 million.
• DPU of 2.07 cents
• Maintain Buy, fair value of $1.57
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Steady as a rock
Parkway Life REIT reported a set of results which is very much within expectations. Revenue and DPU have grown steadily throughout the quarters. The REIT registered 1QFY10 revenue of $18.6 million (+14.1% y-y, +5.1% q-q), net property income of $17.2 million (+13.4% y-y, +4.5% q-q) and distributable income of $12.5 million (+9.7% y-y, +0.9% q-q). Revenue increased due to full quarter revenue contribution from the eight nursing homes in Japan that were acquired in Nov 2009 as well as the increase in rental from the annual rent revision. DPU for the quarter was 2.07 cents (+9.5% y-y, +1.0% q-q). Revenue from Singapore accounted for 72.1% while Japan contributed 27.9%. With the Japan properties acquisition, there is greater diversification of the revenue streams.
Balance sheet remains healthy. Parkway Life REIT has total debt of $336.3 million. The REIT refinanced $34 million of its debt which will be due in 2H2010, during the quarter with proceeds from the issue of $50 million of the MTN programme. With the refinancing, there is no debt maturing within the next one year. The next repayment is $206.3 million which is due in 2H2011. Current gearing is 28.2%.
The financial results of Parkway Life REIT present very little surprise to us and this is also the reason that we like it. 88.9% of the portfolio has a downside revenue protection from the inflation-linked leases and 98.1% of the total portfolio has a rent review provision. The terms ensure that revenue will grow steadily over time. The other reason we like the REIT is on the prudent debt management. We think management has held a conservative acquisition strategy that has not stretched the balance sheet, keeping a comfortable gearing level. We make slight revisions to our loan interest assumptions which raise our DPU forecast for FY2010 by less than 1% from 8.22 cents to 8.24 cents, translating to a dividend yield of 6.2%. Correspondingly our fair value is raised slightly from$1.56 to $1.57. Maintain Buy recommendation.