Author: tfwee
FCOT – Westcomb
- Fraser Commercial Trust (FCOT) announced 3Q08 distribution per units (DPU) of 1.11 SG cents, a 30.2% YoY decrease from 1.59 SG cents in 3Q07. DPU dived 53.8% QoQ from 2.40 SG cents in 2Q08. 3Q08 DPU represented an annualized yield of about 16.3% base on last closing price of S$0.27 on 03 November 2008.
- Gross revenue was 40.9% higher at S$26.6m in 3Q08 while net property income was about 30.0% higher at S$20.0m. Consequently, income available for distribution declined by about 27.3% to S$8.1m in 3Q08. This was mainly due to a 172% surge in finance cost from S$4.0m to S$11.0m. FCOT noted that 3Q08 felt the full quarter effect of additional borrowings utilized to fund the acquisition of Cosmo Plaza, Galleria Otemae, Azabu Aco, Ebara Techno-Serve and KeyPoint. The margins on the Loan Note Facility have increased in 3Q08 under the terms of its extension. Current average borrowing cost stood at about 3.6% and FCOT expects it to increase to approximately 4.3% in Jan 2009 should prevailing floating rates remain.
- FCOT has a debt-to-asset ratio of about 48.6% with about S$473.1 million (representing 52.4%) of debt due to mature within the next 12 months. FCOT achieved overall portfolio occupancy at about 94.5% with weighted average lease expiry of 4 years.
Rickmers – OCBC
Steady 3Q
Steady 3Q. Rickmers Maritime (RMT) posted US$26.5m in 3Q revenue, up 97% YoY and 12% QoQ thanks to a steady stream of vessel acquisitions since its May 2007 IPO. The trust will distribute 2.25 US cents for the quarter. We note that the expected delivery dates for three more MOL vessels on order have been pushed back slightly and we have adjusted our earnings estimates accordingly. As of end 3Q, RMT is geared at about 1.1x debt-to-equity.
Containership industry faltering. The looming prospect of a global recession and an immense industry order book are pointing to tougher days ahead for the containership industry. News has been dominated by falling freight rates and reports of vessel redeployments and lay ups. RMT charters out its vessels on long-term, fixed rate charters and is less vulnerable to short-term volatility. The charter expiries are staggered, with only one potential lease expiry in the near-term (end 2009). The key risk is counterparty risk, and a consequent charter default or rate renegotiation. RMT’s customers are amongst the top 10 liner companies in the world.
The LTV risk. The demand-supply imbalance is also creating a downward stress on asset values, posing a more immediate threat to RMT because of the loan-to-market value (LTV) covenant in its loan agreements. The breach of the required LTV ratio amounts to a technical default. The cost of debt ratchets up and lenders have a right to demand a “top-up” in terms of cash or additional assets as collateral. With a breach, RMT would have to renegotiate its position with its lenders and possible outcomes could include a vessel sale or a diversion of cash flows to repay debt – impacting unitholder distributions.
Orderbook becomes a burden. RMT expects to take delivery of 11 new vessels costing US$1.2b over 4Q08 to 2010 (with the charters and charter rates already locked in). RMT has credit facilities in place for the first seven ships worth US$492m. An equity injection was planned to partially fund the acquisitions (and accommodate debt repayment terms). Worst case alternatives include an outright vessel sale, a sale-and-leaseback or a sponsor “bail-out” (equity or asset warehouse). RMT can defer the equity issue but it cannot avoid it forever – even with all else equal, at current price levels, the threat of dilution trumps the lure of value. We like RMT for its blue chip charterers and its partial cash retention policy but find the above issues difficult to downplay. Downgrade to HOLD with S$0.40 fair value.
HWT – DBS
Acquisition terms inspire confidence
Story: Hyflux Water Trust (“HWT”) has agreed to purchase 5 water/wastewater treatment plants from sponsor Hyflux, for a total consideration of S$88m. The acquisition is expected to be financed by an outstanding revolving loan facility of US$66m.
Point: This is the first phase of acquisitions under the ROFOAR portfolio offered by Hyflux in end-June and will be conducted in two tranches, depending on the expected date of commencement of operations of the individual plants. The 5 plants have a combined capacity of treating 160,000 cu m of water/day and represent a 36% increase over current portfolio capacity of 445,000 cu m/day. The purchase price of S$88m represents a P/BV of roughly 1.4x, as against IPO valuation of 1.3x P/BV. The premium is justifiable given that all the plants will be fully functional at the time of acquisition, compared to the IPO portfolio where only 7 of the 13 plants were operational. HWT will also ink agreements with sponsor Hyflux to eliminate interest rate risk and risk of lower-than-expected utilisation rates, in order to ensure positive DPU accretion. With this acquisition in place, we conservatively enhance our DPU forecasts by 8%, 20% and 30% over the next 3 years, based on assumptions of 50% capacity utilization in the first year – ramping up to 100% by the 4th year – and fixed rate interest payments of 5% per annum.
Relevance: Following our downgrade last month, share price has plunged 32% – underperforming the broad market index, which fell 17% over the same period – and is now trading at 14% FY09 yield. Based on the higher valuation on expanded asset base and a target dividend yield of ~10% for this asset class, we revise our target price upwards to S$0.61. We expect the market to react favourably to HWT’s positive acquisition intent on favourable terms and the relatively secure yield accretive growth story and upgrade the counter to BUY.
a-iTrust – BT
a-iTrust expanding tech park in Chennai
ASCENDAS India Trust (a-iTrust) is embarking on a $62.7 million expansion of its IT park in Chennai to meet demand for business space in the Indian city. Construction at the International Tech Park Chennai (ITPC) will begin this month and could be completed in early 2010, adding 802,000 sq ft of new business space.
a-iTrust expects the expansion to be yield accretive for unitholders. According to the trust, even though marketing has not begun, there are already indications of interest for 30 per cent of the new space from existing clients looking to grow their operations.
‘We expect the leasing of the new space to progress well,’ said Jonathan Yap, chief executive of Ascendas Property Fund Trustee, the trustee-manager of a-iTrust. Overall occupancy at the ITPC was 96 per cent as at Sept 30, with 1.26 million sq ft of business space taken up. Office space achieved full occupancy.
a-iTrust will fund the total development cost of $62.7 million by debt. This will raise its gearing from 5 per cent as at Sept 30 to 11 per cent. Units of a-iTrust gained two cents to end trading at 48 cents yesterday.
Rickmers – BT
Rickmers Q3 revenue doubles, profit up 15%
SHIPPING trust Rickmers Maritime continued to deliver consistent and on-target results with third-quarter charter revenue almost doubling and net profit rising 15 per cent.
The three months ended Sept 30, 2008, saw charter revenue rising to US$26.5 million from the previous corresponding quarter’s US$13.46 million and net profit climbing to US$9.7 million from US$8.37 million.
Cash flow from operating activities increased 89 per cent to US$19.6 million and helped the trust keep distribution stable at US$9.5 million or 2.25 US cents per unit, maintaining its distribution rate for the second consecutive quarter.
The sharp increase in charter revenue was due mainly to the consistent flow of new vessels coming onto Rickmers Maritime’s portfolio, resulting in additional charter hire days available during the period.
For the first nine months, charter revenue leapt to US$72.6 million from US$20.8 million previously and net profit more than doubled to US$27.3 million from US$11.22 million while cash flow from operating activities more than trebled to US$54.8 million from US$16.25 million.
Allaying concerns about a slowdown in the container line market, CEO Thomas Preben Hansen assured investors that Rickmers Maritime has a strong pipeline of vessel deliveries and long-term leases that stretches into 2020 and it enjoys secured total revenue of about US$2 billion over the period. ‘Rickmers Maritime has very limited exposure to the charter market before 2014,’ Mr Hansen said.
Emphasising the strength of the trust’s counterparties, Mr Hansen added: ‘We have not been contacted for renegotiation of contracts and don’t expect it to happen given the quality of our charterers.’
The trust has secured funding for its capital expenditure for the next year, said CFO Quah Ban Huat.
Rickmers Maritime closed four cents higher at 42 cents yesterday.