Author: tfwee
LMIR – OCBC
Triple whammy decimates 4Q DPU
Sickly 4Q. Lippo-Mapletree Indonesia Retail Trust (LMIR)’s 4Q results missed both our expectations and LMIR’s forecasts at IPO (despite contributions from a post-IPO buy). Gross revenue fell 19% QoQ to S$21.4m. We understand this was driven by expiry and early termination of leases as well as declining other income. LMIR also made a S$7m provision on
receivables, with net property income subsequently falling 51% QoQ to S$12.4m.
NAV falls 26% QoQ. LMIR also recorded a 26% QoQ fall in NAV to S$0.71. We estimate that property values slipped 9% in Indonesian Rupiah terms with the independent valuer adopting a 200 basis point cap rate expansion to reflect higher interest rates. This, coupled with adverse IDR-SGD forex movements, led to LMIR booking a S$344.5m fair value (non-cash) loss on property values. While distributable income is hedged, asset values are not, and investors bear the risk of SGD-denominated ownership of IDRdenominated assets.
Everything but the kitchen sink. Meanwhile, LMIR also decided to write off S$3.3m in fees on an unused loan facility as the manager believes acquisitions are unlikely in 2009. This is being treated as a cash charge, impacting distributions. Together, this write-off; the revenue decline; and the provision ate a substantial chunk out of 4Q distributable income, which fell 81% QoQ to S$3.2m. This translates to a 4Q DPU of 0.3 S cents, or an annualized yield of just 5% (versus 27% based on 3Q DPU).
Provision size could signal revenue model risk. LMIR attributed the S$7m provision to outstanding rents from wholesaler tenants or third-party agents who earn revenue from sub-leases on atrium spaces/corridor leases. These wholesalers are not only in arrears but have also terminated their leases. Now, we understand casual leasing contributes about 10% of total revenue. But on that basis, the exceedingly large provision is equivalent to an entire year’s worth of arrears. We also understand that LMIR does not collect security deposits from these wholesaler tenants. Early termination of leases – especially of this breed – is then a key risk, creating earnings uncertainty. We note LMIR has another S$19m in receivables, or 19% of total FY08 revenue.
Downgrade to HOLD. LMIR needs to resolve the uncertainty through better (direct) rental contracts as well as security deposits. We have lowered our earnings estimates, and will keep a close watch on earnings stability over the next few quarters. For now, LMIR’s 20% FY09F yield seems relatively expensive on a risk-reward basis. Downgrade to HOLD with S$0.24 fair value (prev: S$0.38).
LMIR – BT
LMIR Trust Q4 DPU 79% below forecast
For 2009 it plans to focus on organic growth instead of adding assets
LIPPO-MAPLETREE Indonesia Retail Trust (LMIR Trust) has announced a distributable income of $3.2 million for the fourth quarter ended Dec 31, 2008, 79 per cent below its forecast of $15.5 million.
Distribution per unit (DPU) for the period is 0.3 cent, also 79 per cent below its forecast of 1.45 cents.
For the financial year ended Dec 31, 2008, distributable income was $59.5 million, 14 per cent lower than its forecast of $68.9 million while DPU was 5.6 cents against its forecast of 6.48 cents.
LMIR Trust, which was listed in November 2007, said the decrease in distributable income for FY2008 was due to the allowance for outstanding receivables of $7 million and the writing off of an upfront arrangement fee of $2.8 million for a $225 million term loan facility that was expected to be syndicated by September this year.
‘The manager will focus on organic growth for 2009 and asset acquisitions are unlikely,’ said LMIR Trust. ‘Coupled with the challenging credit environment, the manager has, as a measure of prudence, decided to write off the $2.8 million fee.’ Legal fee of $0.5 million would also be written off, it said.
The $7 million receivables are outstanding rent from wholesaler tenants. LMIR Trust said that while these tenants have given notice of termination of their leases, it considers these tenants to be in breach of their contractual obligations and will engage all legal means to recover the debts. ‘However, as a measure of prudence, the manager has decided to make specific provisions for the total amount outstanding,’ it said.
Gross revenue for the quarter was $21.4 million, one per cent above forecast. Excluding Sun Plaza, which was acquired in March 2008, gross revenue was $17.6 million, or $3.5 million below forecast.
Property operating expenses for the quarter totalled $9.1 million, which is $7.8 million above its forecast. LMIR Trust said the increase was due mainly to the outstanding receivables of $7 million, higher land rental, additional property management fee arising from the addition of the Sun Plaza property and higher operating expenses.
The lower gross revenue and higher property operating expenses resulted in a net property income of $12.4 million for the quarter, which is $7.4 million or 38 per cent below forecast.
Total loss for the quarter after tax but before distribution was $255.9 million, against a forecast net profit of $14.6 million. This was attributed to a deficit of $301.7 million (net of deferred tax) arising from a change in fair value of investment properties. A significant portion of this was due to the depreciation of the Indonesian rupiah against the Singapore dollar, said LMIR Trust. While LMIR Trust does not have a policy of hedging capital values, rupiah income is substantially hedged in Singapore dollar and this has resulted in unrealised exchange gain of $46.2 million, added LMIR Trust.
LMIR Trust said that as at end-2008, its portfolio was valued at $829.9 million.
Gearing at end-2008 stood at 12.4 per cent, with total borrowing of $125 million. LMIR Trust said no debt is to be refinanced until March 2013.
At the end of trading yesterday, LMIR Trust’s unit price was 24 cents, down 4 cents.
REITs – BT
Moody’s to review ratings for Singapore Reits
MOODY’S Investor Service has said that it will review ratings for Singapore’s real estate investment trusts (Reits) after downgrading the second-biggest Reit traded on the nation’s exchange.
‘Those Singapore Reits with refinancing risks over the next 12 months and those with weak credit metrics that are likely to be under pressure under the prevailing weakened operating environment will be reviewed closely,’ Kathleen Lee, a credit analyst at Moody’s, said in a reply to a query.
The worst global recession since the Great Depression has frozen credit, making it difficult for property owners to refinance maturing debt.
Moody’s had on Jan 30 cut its rating for Ascendas Real Estate Investment Trust, an industrial landlord, to ‘Baa1’ from ‘A3’. The downgrade ‘reflects the trust’s ongoing refinancing risk, given that it hasn’t fully addressed its reliance on uncommitted revolving credit facilities to support its long-term assets’, Moody’s said in a statement.
Ascendas Reit slumped 5.5 per cent to $1.38 yesterday.
Ascendas Reit raised $407 million from a share sale last month and is in talks with an unidentified bank for a new $250 million, three-year committed credit facility and is seeking the extension of an existing $300 million loan that will mature in March 2010, according to a statement sent by Ascendas Funds Management Ltd to the Singapore Exchange yesterday.
Ascendas Funds ‘has been taking, and will continue to take, a proactive approach towards the capital management of Ascendas Reit’, the statement said.
Other Reits also fell. CapitaMall Trust, the city’s biggest, fell 5.6 per cent to $1.51.
Frasers Centrepoint Trust, the shopping mall operator partly owned by the city’s biggest beverage company, slipped 5.8 per cent to 65 cents.
Ascott Residence Trust, partly owned by the city’s biggest developer, slumped 8.9 per cent to 51 cents. — Bloomberg
Saizen – BT
Moody’s reviews Saizen for possible downgrade
Reit unlikely to achieve operating scale in its existing rating, says agency
MOODY’S Investors Service has put Saizen Reit’s Baa3 corporate family rating on review for possible downgrade.
Kaven Tsang, a Moody’s assistant vice-president/ analyst, said: ‘The review is prompted by Moody’s expectation that it is unlikely that Saizen can achieve the operating scale that was built into its existing rating when it was first assigned, as the credit and financing market remains tight and could deteriorate further in view of the deleveraging progress evident in the banking system . . . Meanwhile, Saizen stays exposed to a high level of refinancing risk in the fourth quarter of 2009.’
Saizen Reit, which was listed on the Singapore Exchange in November 2007, invests in Japanese regional residential properties.
In a proposed rights issue announcement dated Dec 31, 2008, the trust’s manager said that in order to conserve cash, it may as a temporary measure consider significantly reducing or suspending dividend payouts in cash until refinancing plans become clearer and financial conditions are more satisfactory.
On Jan 13, the manager further proposed a scrip-only dividend scheme, subject to unitholders’ approval, to ‘provide the flexibility for Saizen Reit to pay out part or whole of a dividend by way of new scrip dividend units (in the event that a dividend is announced) and allows cash to be conserved for loan repayments’.
Saizen Reit’s unit price has fallen from 82.5 cents on Feb 26 last year to its last traded price yesterday of 10.5 cents.
In Moody’s release yesterday, Mr Tsang, who is also lead analyst for Saizen Reit at the ratings agency, observed that internal reserves – including an estimated 5.7 billion yen (S$96.7 million) in unrestricted cash as at December 2008 – and about 2.5 billion yen in expected proceeds from a recently announced rights issue, are more than enough to cover Saizen Reit’s maturing debt in the first half of 2009.
‘However, it still has to secure additional financing to meet a total of 13.4 billion yen in maturing CMBS (convertible mortgage- backed securities) due in the fourth quarter.’
The proposed rights issue is subject to approval by regulatory bodies and independent unitholders.
‘The tightened state of the global credit environment and the distressed state of the banking sector add material uncertainty to Saizen’s refinancing process, while it is also exposed to the weakening operating environment as Japan moves into recession,’ Mr Tsang said.
Moody’s last rating action for Saizen Reit was on Nov 28 when the outlook was revised to negative.