Author: tfwee
Cambridge – Phillip
On a quarter-on-quarter basis, gross revenue for 1QFY09 was flat at $18.4 million (+4.5% y-o-y), net property income increased 6.6% to $16.1 million(+3.2% y-o-y), distributable income decreased 5.5% to $10.3 million(- 18.2% y-o-y). DPU for the quarter is 1.291 cents.
CIT’s gross revenue for 1QFY09 registered flat growth, which was in-line with expectations, given there wasn’t any catalyst to earnings. Portfolio occupancy remains at a high 99.2%. However distributable income fell 5.5% and DPU fell 6.0% mainly due to higher interest expense incurred on the new loan.
CIT refinanced its loan in Feb 2009 and has no refinancing worries for the next three years. The refinancing comes at substantially higher interest of 5.9% and is the main reason for the decrease in DPU. Our previous estimate was an interest cost of 5.0%. Current gearing is 39.9%.
Without the overhang of refinancing worry, the only concern is whether CIT can maintain its portfolio occupancy. We continue to assume a portfolio vacancy of 3%. Revenue growth is supported by fixed rental escalation built into leases. We tweaked our assumptions to account for lower property expenses due to government rebates and also higher interest expenses vs our previous assumptions. CIT is currently trading at 60% discount to NAV. We have a forecasted FY09F DPU of 4.73 cents, which translates to 16.6% dividend yield. We apply WACC of 11.4% and terminal growth of 1% to our DCF valuation. Fair value is raised from $0.27 to $0.31. We maintain our HOLD recommendation.
StarHill Gbl – DBS
Results in line
At a glance
• Results were in line with our estimates
• 39% of space up for renewal in 2009-2010
• Inexpensive but catalyst appear lacking in near term
• Maintain HOLD, TP S$0.60
Comment on Results
Stable performance. Starhill Global REIT (SGREIT) reported 1Q09 results in line with our expectations. Gross revenues and NPI grew by 13% and 17% to S$34.3m and S$27.1m respectively. NPI margins improved to 80% from 76% due to (i) higher revenues post its Toshin rent review in July’08, (ii) positive rental reversions for certain office space (+110% from preceding rents), (iii) aided by savings from property rebates enjoyed during the quarter. Distributable income came in at 7% higher yoy, translating to a DPU of 1.87 Scts. For 1Q09, SGREIT is retaining c.5% of income available for distribution for working capital purposes.
Strong financial metrics. Gearing remained relatively low at 30%, interest cover at 4.9x. while NAV stands at S$1.43.
39% of space up for renewal in FY09-10. Looking ahead, SGREIT has c. 15%(FY09) and 24%(FY10) of its income up for renewal in an increasingly tough operating climate. We estimate asking rents for its office and retail space to decline by 10-50% over the next 2 years. Vacancy levels is also estimated to increase by 5 -10%.
Recommendation
Maintain HOLD, TP maintained at S$0.60. SGREIT currently trades at 0.3x P/BV, below peers average of 0.4x P/BV. Newsflow from discretionary shopping is expected to continue remain lackluster, capping re-rating opportunities. As such, maintain HOLD, TP $0.60. Currently, SGREIT offers a FY09-10 yield of 14-15%.
Rickmers – DBS
In the doldrums
At a Glance
• Lowered DPU payout to base distribution level of 2.14 UScts (down 5% qoq)
• No headway yet on financing for the four 13,100 TEU Maersk vessels due for delivery next year
• In talks with lenders for waiver of debt covenants
• Liquidity challenges next year with impending bullet loan repayment in April’10
• Maintain HOLD with a reduced TP of S$0.39
Profit stronger than expected. While revenue of US$32.5m (up 10% qoq) was in line with expectations, net profit surged 54% qoq to US$11m. This was largely on the back of lower-than-expected interest expenses and the lack of transaction fees. Distributable cash flows increased 8% qoq to US$16.8m. The DPU payout of 2.14UScts corresponds to only 54% of available cash.
But even existing credit facilities may shrink. With sharp contractions in asset prices, lenders may choose to restrict the amount to be drawn down from available facilities. This is on top of the Trust’s inability to secure funding for the US$711m of committed capex due next year. At worst, the Trust may have to sell the Maersk vessels (with charter) to a 3rd party at a sizeable haircut.
Are more DPU cuts on the way? The Trust would need to repay about US$158m of loans next year, including a US$130m tranche in April’10. The possible redelivery of the Maersk Djibouti in Feb’2010 implies added revenue pressure. The 5% cut in DPU may, thus, be no more than a signal, given the uncertainties. However, at current valuations, even a 50% cut in DPU going forward would imply a FY09 yield of more than 22%. We conservatively impute a 20% cut in DPU for the next 3 quarters. Maintain HOLD, TP cut to S$0.39.
LMIR – OCBC
DPU sees sharp recovery QoQ
DPU recovers. LMIR Trust posted S$18.7m in 1Q gross revenue, down 8.1% YoY and 13% QoQ. Net property income fell 9.3% YoY to S$17.5m, but registered a 41.7% QoQ improvement as 4Q NPI was hit by a S$7m provision for receivables. 4Q results were also hit by a S$3.3m write-off of fees on an unused loan facility. Consequently, distributed income rose 351% QoQ to S$14.6m, while falling 13% YoY. LMIR will pay out 1.36 S cents for the quarter versus the 0.3 S cents paid out a quarter ago. This is equivalent to an annualized yield of 22.2% on the current share price. Results were better than expected.
Casual leasing still a problem. To recap, 4Q was plagued by a few key issues: expiry and early termination of leases as well as declining other income. Last quarter’s provision was on outstanding rents from wholesaler tenants or third-party agents who earn revenue from sub-leases on atrium spaces/corridor leases. These wholesalers were in arrears and had also terminated their leases. These issues flowed through to 1Q revenue as well. The manager said it is moving away from wholesale tenants to dealing directly with casual tenants. We note LMIR still has another S$19.3m in receivables, or 19% of total FY08 revenue.
Rental market is tougher. Indonesia’s central bank is projecting economic growth of 3-4% in 2009, compared to growth of 6.2% a year ago. The manager said that LMIR was achieving lower rental increases on lease renewals than it had forecasted at IPO. The manager guided that the rental outlook for 2009 is challenging, as “retail space demand is expected to weaken and competition among landlords to intensify”. We note that portfolio occupancy has fallen two quarters in a row now, to 95% from 95.7% in December. This is still higher than the 83.1% industry average (Cushman & Wakefield). Mal Lippo Cikarang saw the biggest decline, with occupancy falling 700bps to 86.6% in a space of three months.
Issue with lender. The manager warned that there is some delay in arranging the correct documentation for its S$125m loan. It is currently asking its lender for an extension – which may result in a one year reduction in loan tenure and a restructuring fee of S$1.5m. LMIR is geared at 12.3%. We have adjusted our earnings estimates but will keep a close watch on earnings stability over the next few quarters, as well as outstanding receivables. We maintain our HOLD rating and S$0.24 fair value as we track these issues.
FCT – OCBC
QoQ improvement as asset enhancement winds up
DPU up QoQ. Frasers Centrepoint Trust (FCT) posted S$21.1m in 2Q09 revenue, down 2.4% YoY but up 8.3% QoQ. NPI margins improved to 69.7% from 66.8% a year ago and 65.9% in 1Q09 due to the absence of one-off expenses and cost management. FCT will distribute S$11.6m for the quarter, up 7.3% YoY because of a larger 100% payout (versus 90% a year ago) and up 11.3% QoQ. Unitholders will receive 1.86 S cents per unit, or an annualized yield of 10.7%. FCT’s results were slightly better than expected: 1H09 revenue and distributed income make up 52% of our full-year estimates.
Asset enhancement winding up. In recent quarters, the trust’s earnings have been distorted by planned enhancement works at Northpoint. The property earned S$2.5m in net property income, down 29.1% YoY but up 58.2% QoQ as the temporary vacancy situation corrected in line with progress on the works (72% actual occupancy at Mar 09 versus 52% as at Dec 08). We expect occupancy figures to improve further in 2H09, with the work scheduled to be completed by June 2009. The manager has secured or is in advanced negotiations for leases on 94% of the mall’s NLA. FCT re-affirmed its guidance for post-enhancement rents at the mall, and says Northpoint can achieve S$4.5m in NPI with 100% occupancy – which is 77% higher than what the property earned this quarter.
Portfolio holding course. FCT’s other two properties maintained occupancy rates of 99.5%-100%. Causeway Point recorded an 8% QoQ increase in NPI to S$11m, while Anchorpoint registered a 16% QoQ increase in NPI to S$1.1m. Only 0.9% of portfolio NLA was renewed in 2Q09, at a 7.3% increase over preceding rents. This is a significant step down from the increases achieved in the preceding four quarters, which have all been in the high teens.
For stability seekers. We still like FCT’s relatively “safer” suburban portfolio and it’s mass-market, non-discretionary spending focus. Our valuation prices in a 5-7% decline per annum in new rentals/ renewals over the next two years (except for the uplift at Northpoint post-works). FCT is geared at a low 29.7%, with the bulk of its loans maturing in July 2011. We think FCT
is an attractive proposition for investors seeking yield stability. However, from a value perspective, we think there are better deals out there in the sector. The lack of critical mass in the current portfolio, with growth plans on hold, is also a concern. Maintain HOLD with S$0.62 fair value