Author: tfwee
FCT – BT
FCT reports 1.7% rise in Q2 income
It expects to sustain income levels despite downturn
DESPITE lower gross revenue, Frasers Centrepoint Trust (FCT) has posted a 1.7 per cent rise in distributable income to $12.2 million for its fiscal second quarter ended March 31.
Distribution to unitholders for the three months stood at $11.6 million, after a retention of 5 per cent of this distributable income by FCT.
This is still 7.3 per cent higher than the $10.8 million distribution to unitholders for Q2 last year. As a result, distribution per unit edged up to 1.86 cents, from 1.75 cents a year ago.
FCT said its gross revenue for the quarter slipped 2.4 per cent to $21.1 million largely due to planned vacancies at Northpoint as a result of ongoing addition and alteration works to enhance and reposition the mall.
This was partly offset by an average increase of 7.3 per cent in rentals among replacement and renewal leases. As at end-March, occupancy rate of the properties in its portfolio was 93.4 per cent, up from 88.7 per cent as at end-December.
Property expenses fell 10.9 per cent to $6.4 million. Including share of associate’s results, total return after tax dipped 2.3 per cent to $14.1 million.
The performance brings its half-year income currently available for distribution to $22.7 million, a dip of 2 per cent. Total distribution to unitholders in the six months to March climbed 5.9 per cent to $22 million. Gross revenue dipped 2.8 per cent to $40.6 million.
Despite the challenging economic climate, FCT is expected to sustain its income performance. Said Christopher Tang, chief executive of the trust manager: ‘FCT is well positioned to meet the prevailing challenging economic conditions with its defensive suburban retail profile, robust capital structure and the completion of Northpoint’s enhancement works.’
Shares of FCT went up two cents to 69.5 cents yesterday.
FCT – CIMB
In good shape
• DPU in line despite the retention of 5%. 2Q09 results are in line with Street and our expectations. 2Q09 DPU grew 6.4% yoy to 1.86cts, 26% of our full-year forecast. Distribution income of S$11.6m grew 7.3% yoy and excluded S$0.6m (5% of available distribution of S$12.2m) retained in the quarter. Gross revenue of S$21.1m deteriorated 2.4% yoy due to planned asset enhancement work at Northpoint. Despite this, net property income grew 2% yoy and 15% qoq to S$14.7m, attributable to: 1) expenses coming off a higher base in 4Q08 from oneoff maintenance expenses; 2) greater economies of scale as expenses were partially shared with the completed Northpoint 2 held by the sponsor; and 3) upgrades to M&E systems during asset enhancement work that resulted in reduced utility costs.
• Operations in good shape. Despite ongoing asset enhancement work in Northpoint, portfolio occupancy continued to climb to 93.4% from 88.7% in Dec 08 as occupancy at Northpoint improved 19.9% pts to 72.1%. Additionally, traffic count for the whole portfolio moved up 8% yoy.
• 96% of gross rental income locked in for FY09. FCT has made good progress with lease renewals in 2Q09. To date, it has locked in 96% of gross rental income for the rest of FY09. This leaves only 15,706 sf of space expiring in FY09. Leases renewed were up 7.3% over preceding rents, or an estimated 2.4% increase per annum. Pre-leasing at Northpoint was positive with 94% of the space taken and completion is expected in Jun 09.
• Intention to term out S$80m of short-term debt. FCT has S$80m of short-term debt that it rolls over every three months. Management is exploring options to term out these short-term loans for longer periods.
• Maintain Outperform and target price of S$1.06. FCT’s progress with pre-leasing renewals, improving occupancy and unfaltering traffic count are encouraging in this difficult time. FCT remains our preferred pick for suburban retail exposure. Our DDM-derived target price of S$1.06 (discount 9.4%) is unchanged. Maintain Outperform.
MLT – CIMB
Steady start to the year
• 1Q09 results in line. Distribution income of S$28.6m and DPU of 1.47cts are in line with Street and our expectations (27% of full-year forecast). Yoy DPU growth was – 22.6% due to additional units from a rights issue in Aug 08, while qoq growth was marginal at 0.7%. Growth in net property income of S$46.2m was strong yoy (+24%), but significantly slower qoq (+2.4%) with a reduced number of new acquisitions to boost the topline.
• Occupancy down 1.6% pts; renewals on track. Occupancy level in MLT’s portfolio fell 1.6% to 98% in Mar 09. Nonetheless, this was still materially higher than islandwide warehouse occupancy of 92.8%. Management reported that over 35% of leases (as a percentage of gross revenue) expiring in 2009 have been renewed. This represents 7% of overall portfolio revenue. Average reversion rates are flat compared with prevailing rates. Tenant arrears remained small at 1% of annualised gross revenue.
• Short-term debt manageable. MLT has S$151m or 12.5% of total debt due in 2009. Management assures that it has sufficient credit lines to refinance this debt. These include S$185m from: 1) a S$46m 3-year term loan completed on 31 Mar 09; 2) S$99m of secured revolving credit facilities; and 3) S$40m of cash earmarked for debt refinancing. Management is also documenting at least another S$80m of debt facilities which will include committed revolving credit facilities and term loans. Average weighted borrowing cost remains low at 2.9% with no assets secured. Asset leverage for the quarter was 38.3%, excluding S$40m of borrowings earmarked for refinancing. This is in line with MAS’s clarification in Jan 09 that debt raised for refinancing purposes earlier than maturity would not need to be counted in the calculation of REITs’ aggregate leverage limit.
• Maintain Outperform and target price of S$0.60. Our DDM-derived target price (discount 9.6%) stays at S$0.60, with no changes to our estimates. Although the pressure to maintain occupancy and rents remains, we are encouraged by its relatively high tenant retention rate of 80% and success in securing refinancing. We believe MLT will be able attain our forecast distribution for FY09.
FSL – OCBC
Reinvestment scheme in play for 1Q09 distributions
Results in line. FSL Trust (FSLT) posted US$24.8m in revenue, down 3.3% QoQ and up 49.5% YoY thanks to acquisitions made over the course of 2008. Note that, as previously guided, this is the first quarter where FSLT will not distribute 100% of cash earnings. Instead, the trust will distribute about 73% of cash earnings, or 2.45 US cents per unit, down 5.4% YoY and 20.4% QoQ because of the lower payout. The results were in line with our expectations. The trust guided for a 2Q09 DPU of 2.45 US cents as well.
Voluntarily prepaying loans. FSLT used US$4m of the retained US$4.6m to voluntary prepay loans. We have noted previously that shipping trusts have to re-align their debt tolerance and business model in light of a ‘new world order’ of falling asset values and low lender risk appetite. FSLT’s decision to voluntarily reduce its payout ratio is in that vein – a preemptive gesture of good faith to lenders. FSLT is geared at a still high 1.38x debtto- equity. A US$4m per quarter prepayment is a small number compared to the absolute US$509m outstanding loan amount. This is a gesture – not a game-changer, in our view.
Reinvestment scheme in play. The distribution reinvestment scheme (DRS) will apply in 1Q09, giving unitholders the option to receive 1Q09 distributions in units instead of cash. Any proceeds from the DRS (that is, the saved cash earnings) will also be used to prepay loans. This scheme is an attempt to balance the needs of investors demanding cash yield against concerns of sustainability and gearing. But it is unclear just how many investors will voluntarily “do the right thing” for the trust and elect to receive units instead of cash. The success of the scheme in 1Q09 may significantly affect FSLT’s course of action going forward – if the DRS fails and market conditions persist, FSLT may ultimately have to cut the distribution payout further, effectively making the “right” choice for unitholders.
Valuation. FSLT has a diversified portfolio with exposure to different shipping sub-sectors, and with no charterer contributing more than 20% of annual revenue. Our key concern is counterparty performance and any resulting disruption of cash flows. The current share price is quite clearly pricing in a distressed scenario, in our opinion. However, we would prefer to wait
until the shipping industry shows concrete signs of stabilizing before we turn buyers. Our fair value estimate is S$0.45 (previously under review).
Maintain HOLD.
ART – DBS
Results below estimates
• Ascott Residence Trust (ART) results were slightly below expectations.
• Decline in RevPAU is more than expected
• Uncertainty in major operational markets likely to cap share performance
• Maintain HOLD with TP of $0.59
Results slightly below estimates. Gross revenues and NPI declined by 3.7% to S$42.1m and S$19.9m respectively. This was driven by weaker RevPAU in its major operational markets, which fell by 15% to a portfolio average of S$120. Distributable income was 23% lower at S$10.8m, translating to a DPU of 1.77 Scts for the quarter. On a sequential basis, performance was also slightly weaker, with RevPAU registered a 5% decline.
Balance sheet remains healthy with a gearing ratio of 38% and interest cover of 3.4x.
Adjusting DPU estimates. We lowered our forward RevPAU estimates to take into account a larger than expected fall in RevPAU for Singapore and China, resulting in a lower FY09-10F DPU estimate of 7.1 Scts and 6.9 Scts.
Maintain HOLD, TP $0.59 While ART’s valuation of 0.3x P/BV is one of the lowest valued S-reits in the sector, uncertainty from its major regional markets is likely to overhang on share price performance in the near term. Maintain HOLD, TP lowered to S$0.59 based on DCF. ART currently offers a FY09-10F DPU yield of 15%.