Author: tfwee
CRCT – BT
CRCT mindful of downturn’s impact
THE mall business in China has held up so far but CapitaRetail China Trust (CRCT) is mindful of the economic downturn’s impact on rents and occupancies.
The trust shared this view yesterday as it reported a net property income of $19.1 million for the first quarter ended March 31, 2009 – a 33.5 per cent increase from a year ago.
Income available for distribution rose 51.3 per cent to $13.3 million. This results in a distribution per unit (DPU) of 2.14 cents, exceeding the 1.55 cents in Q1 2008.
On an annualised basis, CRCT’s DPU in Q1 2009 was 8.68 cents, providing a distribution yield of 11.8 per cent based on the unit closing price of 73.5 cents on March 31. The trust gained half a cent to close at 92 cents yesterday.
CRCT attributed the stronger results to the rise of the Chinese yuan against the Singapore dollar; the acquisition of Xizhimen Mall in Beijing; and year-on-year rental growths at three other malls.
Shopper traffic and same-store sales have ‘held up well’ despite challenging economic conditions, registering year-on-year growth of 2 per cent and 2.2 per cent in Q1 2009 respectively, the trust said. New leases and renewals were also committed at rents which were 1.8 per cent above their preceding rates.
Nevertheless, trust manager CapitaRetail China Trust Management Limited’s CEO Wee Hui Kan highlighted that the trust is mindful of the global slowdown’s effect on consumer sentiments.
‘Retailers have also become more cautious in their expansion plans, and this would have an impact on rental growth and occupancy levels at our malls,’ he said.
The trust manager’s focus this year is to maintain occupancy levels at its malls, and to work closely with tenants to drive shopper traffic and sales. The ‘proactive management strategy will serve to ensure a stable and sustainable distribution to unitholders in 2009, and position us in good stead for an economic upturn’, added Mr Wee.
CRCT’s gearing ratio as at March 31 stood at 33.1 per cent, and it has borrowings of $65.2 million maturing in 2009.
CMT – BT
CMT Q1 distributable income climbs 8%
This is after addition of one property to its portfolio and completion of improvements at two others
CAPITAMALL Trust (CMT), Singapore’s biggest property trust, said that its first-quarter distributable income climbed 8 per cent after it added one property to its portfolio and completed improvements at two others.
Distributable income rose to $62.6 million for the first three months of 2009, compared with $58 million a year earlier.
But distribution per unit (DPU) fell to 1.97 cents from 3.48 cents a year ago as the trust did a rights issue in Q1. The proceeds of $1.2 billion from the rights issue will be used to repay borrowings due in 2009.
The trust said that rental renewal rates in Q1 2009 saw a moderate growth of 1.3 per cent over preceding rental rates. Based on committed leases as at March 31, 2009, the trust’s gross revenue locked-in for 2009 exceeds 90 per cent of gross revenue for the whole of 2008. But despite this, CMT is cautious on its outlook.
‘The revenue outlook for CMT will depend on the extent, depth and duration of the economic recession and financial uncertainties on CMT’s tenants as well as new demand for retail space,’ said Lim Beng Chee, chief executive of the trust’s manager.
Retail sales in Singapore fell for the fifth straight month in February, easing 5.7 per cent, official data released recently showed. CMT yesterday reiterated that it is managing its costs and working closely with tenants to ‘align the trademix promptly in line with the environment’.
‘We also have in place a slew of measures to help our tenants, ranging from restructuring of leases, reviewing of space efficiency to working with tenants on various promotional fronts,’ said Mr Lim.
The trust’s Q1 2009 net property income rose 9.1 per cent to $92.4 million, from $84.7 million in Q1 2008, mainly from the acquisition of The Atrium@Orchard and completion of asset enhancement initiatives at Sembawang Shopping Centre and Lot One Shoppers’ Mall. Gross revenue rose to $134.5 million, an increase of 11.1 per cent over Q1 2008.
CMT also said it is currently in talks with the authorities to optimise the integration plan for The Atrium@Orchard and Plaza Singapura, and aims to start work by end-2010, subject to market conditions and approvals from the relevant authorities. The trust also plans to start enhancement works at Jurong Entertainment Centre by the end of the year, it added.
CMT’s revenue was in line with expectations, said Kim Eng analyst Wilson Liew, who issued a fresh ‘buy’ call on the stock yesterday. ‘Its portfolio that is geared towards necessity spending should provide more resilience under current economic conditions. Its balance sheet has been substantially strengthened following the rights issue,’ he noted.
CMT shares gained one cent to close at $1.30 yesterday.
PST – DBS
And the renegotiations are here
Pacific Shipping Trust announced that it might have to renegotiate charter rates down by about 30% for CSAV, which charters 2 of its fleet of 12 vessels. To note, we had highlighted in our last report that the key risk for PST’s distributions would be in the form of counterparty risk with respect to CSAV. We estimate this will impact DPU by at least 13-15% in FY09 & FY10, and downgrade PST to FULLY VALUED at a reduced target price of US$0.15. Further risks stem from PST’s lenders invoking penalty clauses owing to the resulting material changes in charter contracts.
CSAV feels the heat. After a couple of downgrades by rating agencies earlier in April, Chilean container ship operator CSAV has decided to strengthen its balance sheet by US$750m – through a US$220m rights issue, as well as capitalising commitments with ship-owners and banks to the tune of US$400m. The re-negotiation with PST is thus, part of a broader co-operation and assistance framework to bail CSAV out of a difficult situation arising from huge operating losses.
And PST will be forced to cut DPU. Currently, CSAV’s two charters account for about 30% of PST’s revenue stream. Hence, we estimate revenue will be affected by about 10% in FY09-10, and lower our DPU estimates for FY09-10 by 14-16%. This translates to a DPU of about 3.2 UScts in FY09 and 3.4 UScts in FY10, down from 4.1 UScts in FY08.
Clouding sentiment for the shipping trust sector. While part of the reduction in charter hire may be capitalized in the form of shares to motivate ship owners, we feel the risks to DPU is heightened by reduced cash flows backing up the US$80m outstanding loan for the 2 CSAV ships. Diversion of cash flows to meet lender’s penal requirements cannot be ruled out. In line with lower DPUs, our DDM-based TP is also reduced to US$0.15. Downgrade to FULLY VALUED.
PST – OCBC
Charterer CSAV seeking rate reduction
Charterer CSAV seeking rate reduction. Pacific Shipping Trust’s (PST) customer CSAV is asking ship owners (such as PST) for a temporary reduction in charter hire payments. Two PST vessels (out of a 12 vessels fleet) are chartered to CSAV on 5-year time charters. These charters contribute 30% of PST’s annual revenue.
Expect PST will agree. We expect PST to agree to the renegotiation request. The reality is that accepting this reduction is probably the best option PST has in today’s environment. PST’s manager acknowledged that vessels of comparable size to the two PST vessels are currently unemployed and while the current market rate would cover operating costs, it would likely not be enough to cover both interest expenses and debt repayments. Lower cash flows from CSAV are better than no cash flows at all, in our view.
Still a lot of unknowns. Discussions are still in very preliminary stages. This is a complicated process as CSAV will have to negotiate reductions with all the numerous ship owners. Based on CSAV’s targeted savings, PST estimates that it may be asked for a 30% reduction in charter rates. This figure only holds if every owner agrees to similar terms (a big if). Typically, ship owners would demand some sort of compensation in return – revenue clawback or partial payment in CSAV equity – that has yet to be determined. Also unclear is how PST’s lenders will react to what likely qualifies as ‘material change’ in the trust’s circumstances. PST’s lenders could conceivably tack on a punitive spread to PST’s cost of debt (increasing interest expense) or demand higher debt repayments.
Will PIL follow suit? PST derives the remaining 70% of its annual revenue (on original rates) from bareboat charters to its sponsor and 59.2% stakeholder, Pacific International Lines (PIL). PST said it has not received any indications from PIL regarding rate reductions. Despite their strong ties, a request for renegotiation is not unlikely, especially if the container industry’s performance continues to deteriorate.
Maintain HOLD. We have reduced our revenue forecasts for FY09-10F by 7% and 9%, and slashed DPU estimates by 17% and 22%. We may need to make further revisions as more details emerge. Counterparty risk (and lender reaction) remains the key risk, and we think this is reflected in our US$0.16 fair value estimate. PST will release 1Q09 results next week. PST already has a fairly conservative distribution payout policy but the Board may have to be even more prudent in light of recent events.