Month: July 2010
FSL – BT
FSL Trust’s DPU for Q2 slumps 61%
DISTRIBUTION by First Ship Lease Trust (FSL Trust) fell 61.2 per cent year on year to 0.95 US cents per unit for the second quarter, as the trust sank into the red on an impairment charge following the re-delivery of two vessels.
FSL Trust posted a net loss of US$6.11 million for Q2 ended June 30, compared with a US$2.35 million net profit a year earlier.
This resulted from the recognition of a US$7.87 million charge after long-term charters for the vessels FSL Hamburg and FSL Singapore were terminated prematurely.
The trust’s Q2 distribution per unit (DPU) represents 33 per cent of generated net cash, versus a payout of 55 per cent for Q1.
FSL Hamburg and FSL Singapore were re-delivered in May by lessees Rovina Shipping Company and Messino Shipping Company – affiliates of Cyprus-based Groda Shipping & Transportation – after they cited cashflow problems.
The vessels were subsequently seized in China and Japan respectively on claims by Daxin Petroleum that it had not been paid for bunkers supplied to them.
The vessels have seen been released after FSL Trust posted bail for them.
FSL Trust has also sued Singapore-based firm Daxin, three individuals representing Daxin in that period and Rovina and Messino – which FSL Trust says are linked to Daxin – for damages suffered as a result of the arrests of the vessels. It also wants legal action against the vessels dropped and is seeking other forms of relief.
The two vessels will be traded in the product tanker spot market for now and may be locked into charters when the tanker market improves.
FSL Trust’s Q2 lease revenue rose 14.8 per cent year on year to US$28.5 million. But this includes a one-off US$6 million cash payment the trust received from the re-delivery of the two vessels. Stripping this out, revenue fell 9.3 per cent to US$22.5 million due to the premature termination of the charter agreements for the vessels.
FSL Trust’s units closed unchanged at 42 cents yesterday.
FCT – CIMB
Asset enhancement starts at Causeway Point
• Results exceeded expectations; maintain Outperform; target price raised to S$1.84 (from S$1.73). 9M10 DPU was above our expectation (82% of our FY10 forecast) though in line with consensus (75% of consensus). The strong performance was attributed to stronger-than-anticipated reversions for Northpoint after asset enhancement and assumption of fewer new units placed out. Management announced asset-enhancement plans for Causeway Point which have just commenced. We increase our base rental assumptions for Northpoint, and factor in the impact of the Causeway Point asset enhancement. Our DPU for FY10 increases 8.5% after higher rental assumptions for Northpoint but falls 2% for FY11 (peak of refurbishment work) before rising 6.8% for FY12. Our DDM target price rises accordingly to S$1.84 from S$1.73 (unchanged discount rate 7.9%). We continue to like FCT for its strong organic growth potential and clear acquisition pipeline from its sponsor.
• 9M10 net property income up 37% yoy, reflecting improved Northpoint contributions after its asset enhancement and maiden contributions from newly acquired Northpoint 2 and Yew Tee Point. There were only seven leases up for renewal in 3Q10, all rising 8.5% over preceding rents, and translating into 2.8% annual growth. Portfolio occupancy was unchanged at 99.4%.
• S$71.8m over 30 months to refurbish Causeway Point. Management has started to refurbish its single largest asset, Causeway Point. Work will include downsizing anchor tenants from the current 65% to 50% of NLA, relocating escalators away from prime space, and building more pro-family features. As revenue contributions form 55% of FCT’s portfolio, asset enhancement will be spread over 30 months to minimise the impact on distribution. Guided ROI is 13% for the S$71.8m capex which is expected to be moderately frontloaded. Some revenue shortfall is expected in 4Q10 as some leases will be pre-terminated to facilitate the refurbishment. However, management expects forward leasing for new space to mitigate the nearterm shortfall in revenue. Management will be fully funding the capex with revolving credit. Cost of borrowing is expected to be under 2%
FCT – CS
3Q10 results in line; announces AEI for Causeway Point
● 3Q10 DPU of 2.07Scts (+6.7% yoy, +0.5% qoq), brings 9MFY10 to 6.04Scts, in line with our and consensus FY10 estimates of 8.1-8.2cts. Revenues grew 45% yoy to S$30.7mn mainly on NP2 and YTP which were acquired in Feb 2010.
● 3Q10 occupancy remained steady at 99.4%, while rent reversions were strong at 8.5% on average, from AP and CWP. Gearing is 31.2% with cost of debt of 3.76%.
● As expected, FCT has announced the AEI programme for its largest asset, Causeway Point (CWP). Spanning 30 months starting from July 10, it will raise NPI by 22% to S$51.5mn. It is expected to be done in phases and management expects that at the peak of works, likely in 2011, occupancy will be 70%, and earnings should pick up substantially from 2012 as higher rents from rejuvenated space flow through.
● We reduce FY11e DPU forecast by 4%, but raised DDM-based TP to S$1.60 from S$1.58, on higher rental contributions from CWP beyond 2012e. FCT offers steady 5.8-6.5% FY10-12e yields.
Strong contributions from new acquisitions.3Q10 revenues rose 45% to S$30.7mn, and NPI rose 46% yoy to S$21.5mn, mainly on contributions from Northpoint 2 and Yewtee Point which were acquired in Feb 2010, and strong rent and occupancy improvements in Northpoint post AEI. DPU growth was 6.7% yoy on higher interest expense and an enlarged share base. Including the S$1.2mn retained in 1H10, management retained S$1.6mn of distributable income for distribution in 4Q10, to smooth out earnings as 4Q10 could be affected by the AEI works at CWP.
Causeway Point AEI to generate 13% ROI. As expected, FCT has announced the AEI programme for its largest asset, Causeway Point (CWP). Spanning 30 months starting from July 10, it will raise rent by 20% to S$12.20/sqft/mth, from the current S$10.20, and raise NPI by 22% to S$51.5mn, an ROI of 13% based on S$71.8mn of capex. It is expected to be done in phases and management expects that at the peak of works, likely in 2011, lowest occupancy will be 70%, and earnings should pick up substantially from 2012 as higher rents from the rejuvenated space flow through. It expects the capex to be evenly spread out throughout the 30 months, and would be funded by its revolving credit facility which cost less than 2% currently. This could be termed out as it approaches a sizeable amount.
Cut FY11e earnings by 4% for downtime. We expect occupancy at CWP to average to 90% in FY11 and 98% in FY12 as the AEI works are carried out in phases. We estimate revenues and NPI would be most affected in FY11, which leads to a flat DPU in FY11, but would improve by FY12 where DPU would improve 12% yoy. As a result, we have adjusted FY11e forecasts by -4%, while FY10 and FY12e earnings are relatively unchanged. We have raised our DDM-based TP marginally to S$1.60 from S$1.58, mainly from stronger earnings beyond 2012 due to the AEI, which are partially offset by lower DPU in FY11e.
Medium-term catalyst: acquisitions. FCT still has a substantial acquisition pipeline from its Sponsor, Frasers Centrepoint, which includes Bedok Mall (81,666sqft, under construction, to be completed by 2H10), The Centrepoint (392,100sqft), and a mall at Changi Business Park (c.200,000sqft, under construction, to be completed by end-2011). This could add up to 84% to its asset size of 797,433sqft, and double its asset value of S$1.4bn. We view this as a medium term catalyst.
FCT – DBSV
Making waves at Causeway point
• Makeover of Causeway Point to cost S$72m
• DBSV projects ROI of 15%, ahead of management guidance of 13%
• Lowered FY11 DPU estimates by 5% due to AEI works at CWP
• BUY with raised target price of S$1.66 on higher profitability post AEI.
Record 3Q10 DPU of 2.07 Scts. Revenues and net property income increased by 44.7% and 46.3% to S$30.7m and S$21.5m respectively with new contributions from Yew Tee Point and Northpoint II acquisitions. Northpoint 1 continued to deliver strong yoy growth post asset enhancement works. Distributable income grew to S$16.3m (+34.6% yoy) translating to a DPU of 2.07 Scts.
Causeway Point (CWP) enhancement works over 30 months will cost S$72m. Together with its results announcement, FCT unveiled plans to re-make aging CWP over the next 30 months. When completed at S$72m, the AEI works are expected to yield 13% ROI.
DBSV expects ROI of 15% instead. We believe that management’s initial guidance is conservative. As Causeway Point is the only mall located in Woodlands town, refurbishment of the mall should fetch higher than the guided S$12.20 psf pm, which is even below Northpoint’s achieved average of S$13.20 psf pm. We project 15% ROI and average rents of S$12.50 psf pm in our estimates.
BUY, TP S$1.66. We lowered FY11 estimates by 5% to take into account lower occupancies at CWP during refurbishment. However, we raised TP to S$1.66 for higher ROI estimates on CWP. Continuous enhancement works will drive yields for its underlying portfolio. In addition, longer-term prospects are underpinned by visible pipeline (Bedok Mall in CY11, Changi Point – longer term) of new malls injections.
CRCT – DBSV
Stabilising portfolio
• Results in line
• Organic growth near term driver
• Maintain Hold with TP of $1.26
1H10 within expectations. CRCT reported a -2.8% y-o-y dip in topline to S$29.6m due to impact from the stronger SGD, while NPI and distribution income rose 1.9% and 7.3% to $19.8m and $12.9m (DPU 2.07Scts) respectively, on better cost management. In Rmb terms, revenue grew 3.7% to RMB145.1m thanks to better portfolio occupancy, higher contributions from Xizhimen and Saihan malls, partially offset by lower income from Qibao mall. Rental renewals averaged 3.4% over preceeding levels. Higher gross turnover rents as tenant sales picked up 28.8% yoy and 7.6% qoq. NPI rose 8.8% yoy to Rmb97.2m. The group enjoyed a 1.7% revaluation surplus in 1H10, bringing adjusted book NAV to S$1.09.
Benefiting from AEI and firming rents. Looking ahead, we expect 2H to remain robust on the back of firming rents and improved demand as retailers regain confidence and resume expansion activities in the Beijing and Shanghai micromarkets. This will benefit CRCT with a remaining 15.9% of rental income to be renewed this year and a further 15.1% next year, in particular at Xizhimen and Wangjing malls. Moreover, the planned opening of another c2ksm in B2 at Xizhimen later this year should provide some income uplift. Saihan Mall is also anticipated to continue its positive traffic and contribution trend with the establishment of a cinema operator in 2H10. Repositioning of Qibao is underway in tandem with the rejuvenation activities in this Shanghai satellite city, to tap opportunities offered by the new infrastructure and population catchment in the area. In terms of capital management, the trust has a remaining S$231m of debt to be refinanced this year. We expect average cost of debt to rise to 3-3.5% from the present 2.8% after renewal. This has been accounted for in our estimates.
We retain Hold rating. CRCT is trading at FY10 and FY11 yields of 6.6-6.7%. Our target price translates to a 6-7% absolute return. Maintain Hold. Key risk to our view include faster than expected improvement in operating fundamentals.