FSL – DBS

DPU guidance maintained at 1.50 Uscts

At a Glance

• Results in line with expectations
• Maintain DPU guidance for 4Q09 at 1.50UScts
• FY10F DPU yield of 13%, best visibility among peers
• Maintain BUY with TP S$0.70

Comment on Results

FSLT delivered another quarter of steady results. Revenue of US$24.6m was stable q-o-q, and the Trust generated cash of US$17.6m, 3% higher than the US$17.1m generated in 2Q09. Of this, the Trust will distribute an aggregate amount of US$8m to its shareholders or a DPU of 1.50UScts for 3Q09.

To recap, a DPU of 1.27UScts for the period 1 July to 16 Sep has already been announced for existing shareholders, while the remaining 0.23UScts for the period 17 Sep – 30 Sep will now be paid to both existing and new shareholders (post placement exercise). The ex-distribution date is 29th October.

Recommendation

Of the US$9.6m cash remaining, the Trust will utilise US$8m towards quarterly prepayment of loans, as per the arrangement following the recent two-year waiver it obtained on its LTV covenants. This will reduce outstanding loans to US$493m, and gearing now stands at 1.3x. Elsewhere, the manager has reiterated that all advance lease payments have been prompt until October 2009 and no request for renegotiation has been received. Hence, risks at FSLT continue to be well managed.

While DPU guidance for 4Q09 has been maintained at 1.50UScts, we continue to project a conservative 1.40UScts DPU per quarter in FY10, given the higher interest costs to be incurred hereon. The Trust is still trading at 13% FY10 dividend yield, more secure and more attractive compared to its peers. Further, the placement proceeds of US$28m, raised during 3Q09, will provide management with a lever to pursue DPU-accretive growth. Thus, we continue to maintain BUY at an unchanged TP of S$0.70.