Author: tfwee
FSL – OCBC
Acquisitions bump up 2Q
Strong 2Q, as expected. First Ship Lease Trust (FSLT) posted a strong set of 2Q results, largely in line with our estimates. The trust saw strong gains in 2Q revenue, up 63.1% YoY1 and 24.4% QoQ to US$20.7m. Net profit came in at US$1.99m, above our estimates due to a lower than estimated depreciation charge and the inclusion of exchange gains worth US$775k. The trust posted a distributable income (net profit plus noncash charges) of US$14m, in line with our expectations. FSLT will pay out 2.8 US cents for the quarter, up 22% YoY and 8% QoQ.
Acquisitions were the kicker. The strong gain in earnings was driven by the acquisition and delivery of four vessels worth US$280m over 2Q. The full impact of these four vessels on the trust’s earnings will be felt in 3Q, and we consequently expect next quarter’s DPU to rise by about 5%. Meanwhile, a fifth vessel costing FSLT US$70m will be delivered in 4Q – the trust is still in the midst of securing financing for the deal. If the acquisition is successfully completed, it will bump up earnings in 4Q and 1Q (full impact).
Debt-to-equity has hit self-imposed 1x target. The aggressive spate of acquisitions also means that FSLT’s debt-to-equity level has shot up from 0.36x last quarter to 1x in 2Q, and will further increase with the fifth vessel buy. Its current debt is on bullet repayment terms. More debt-funded buys on current equity levels may not be as DPU accretive as seen previously as lenders may now require the new debt to be on immediately amortizing terms or at a higher cost of debt. Meanwhile, an equity infusion to continue growing DPU could be dilutive as FSLT continues to trade at prohibitively high yields.
High DPU yield due to aggressive payout strategy. Unlike the other SGX-listed shipping trusts, FSLT does not retain any cash to replenish depreciating assets or to pay down debt. So the distribution paid out consists of both a return on asset and a fair compensation for the loss in value of the unit-holders’ invested capital. FSLT also pays out the depreciation on its leveraged assets. This is similar to the return of unitholders’ capital, except that FSLT is paying out the loss in value of debt-funded assets to unit-holders. This boosts payout in the earlier years, but ultimately debtors will have to be repaid the full principal amount. Maintain HOLD and S$1.20 fair value estimate.
PST – OCBC
Acquisitions help increase DPU
Strong quarter, once again. Pacific Shipping Trust (PST) enjoyed a great 2Q, bringing home US$10m in revenue, up 16.6% YoY and 13.4% QoQ. Earnings were boosted by the full quarter contribution of 1Q buy Kota Nabil and new 2Q acquisition Kota Naga. Net profit came in at US$8.3m, including US$3.8m in non-cash gains. The trust’s earnings came in slightly ahead of our estimates with the new vessels enjoying lower interest costs compared to previous debt-funded buys. Last quarter, PST had reduced cash distributed to 90% of distributable income (after debt repayment) from 100% previously. 1Q DPU consequently fell 12% QoQ to 0.97 US cents. For 2Q, PST will pay out 1.09 US cents a share – up 12% QoQ, back to 3Q07 levels (see Exhibit 1). We expect DPU to continue to increase thanks to the full-quarter contribution of Kota Naga in 3Q and the other two vessels coming in over 2H08.
Acquisitions help increase DPU. PST has been able to increase its DPU despite the reduced payout because of its new acquisitions. The new 2008 assets have a lower asset yield vis-à-vis the initial portfolio (still high relative to other shipping trusts). However, they are more DPU accretive due to a) lower finance costs, and b) more favorable debt repayment terms versus the initial portfolio. Recall that distributable income is from cash remaining after debt is repaid so DPU accretion from debt-financing vessels hinges on the repayment pattern. Debt on the initial portfolio is being paid off quite conservatively over about 11 years. After all four vessels slated for the year come in, we estimate the overall repayment scale will lengthen to a quite reasonable 20 years versus a typical asset life of 25-30 years. We believe this is still a sustainable debt repayment model (which preserves equity by reducing liabilities in line with the erosion in vessel value).
Equity issue inevitable. PST is at a 1.3x debt-to-equity level as of 30 Jun, up from 1.05x at 31 March. We estimate that PST’s debt-to-equity will hit around 2.1x by year end after all 2008 acquisitions are completed. The trust has a yearly acquisition target of US$200m. While we continue to feel a sustainable debt-to-equity level is 1x, the trust has been able to “postpone” an equity issue by increasing gearing beyond 1x in the nearterm. At this acquisition pace however, the need for fresh equity is inevitable. Maintain BUY with US$0.48 fair value estimate.
FirstREIT – BT
First Reit’s Q2 DPU rises 15.8% to 1.91 cents
FIRST Real Estate Investment Trust (First Reit) said yesterday that its distributable amount for the second quarter ended June 30 rose 16.1 per cent to $5.2 million from a year earlier.
This translates to distribution per unit (DPU) of 1.91 cents, up 15.8 per cent, said the Reit’s manager, Bowsprit Capital Corporation.
For the half-year ended June 2008, First Reit’s distributable amount and DPU were $10.26 million and 3.76 cents respectively.
Based on annualised DPU of 7.62 cents and a unit closing price of 70.5 cents on July 18, First Reit’s distribution yield is 10.81 per cent – one of the highest among Singapore Reits, stocks and government bonds, Bowsprit noted. The units closed half a cent higher yesterday at 72 cents.
Driven by rent increases from its four Indonesian properties, as well as rental income from its four Singapore properties acquired in 2007, First Reit’s gross revenue rose 15 per cent in Q2 to $7.5 million, lifting its half-year gross revenue 19.3 per cent to $15 million.
First Reit is Singapore’s first healthcare Reit. It aims to raise assets under management (AUM) to $500 million by 2009 from the current $326 million. ‘First Reit will continue to seek opportunities in the region including Singapore, Indonesia and China to raise its AUM,’ said Bowsprit. ‘We have been selective in our acquisitions as we want to ensure that our portfolio consists of only quality and good-yielding healthcare assets that will provide consistent, sustainable returns to unit holders.’
Apart from portfolio expansion, First Reit intends to improve the income-generating capacity of its existing healthcare properties through asset enhancement and by working with tenants to upgrade services.
Despite current uncertain economic conditions, Bowsprit said that it is ‘optimistic’ that First Reit will perform well in the second half of the year, as its revenue is largely derived from long-term rental leases. The current economic environment is also an opportunity for making better acquisitions.
FSL – BT
FSL Trust payout up 21.8% in Q2 to US$14m
Distribution per unit goes up 27.9% to 2.8 US cents as revenue rises 71.2%
FIRST Ship Lease Trust (FSL Trust), which provides leasing services to the international shipping industry, is distributing US$14 million to unit-holders for the second quarter ended June 30, a year-on-year rise of 21.8 per cent.
This translates to distribution per unit (DPU) of 2.8 US cents, a surge of 27.9 per cent from the previous corresponding quarter’s 2.19 US cents. Compared with the preceding first quarter’s 2.59 US cents, the increase is 8.1 per cent.
‘For the leasing environment, the transaction flows are still very strong,’ said Cheong Chee Tham, chief financial officer of FSL Trust Management (FSLTM), the trustee-manager of FSL Trust. As a result of ‘the credit crunch, banks are reluctant to lend money freely to ship operators, who look for alternative financing. So we see new enquiries coming in all the time’.
Revenue for the quarter surged 71.2 per cent to US$20.67 million from the year-ago period’s US$12.1 million. This came largely on the back of the acquisitions and leasebacks of six vessels – two product tankers from Groda Shipping & Transportation, two crude oil tankers from Geden Lines and two container ships from Yang Ming Marine Transport Corporation – after June 30 last year. Increased revenue resulted in US$14.2 million in net distributable amount, of which US$239,000 was payable as an incentive fee to the trustee-manager.
The quarter’s distribution translated into annualised DPU of 11.2 US cents, 27.9 per cent higher than the 8.76 US cents for 2Q07. This equals to a distribution yield of 12.3 per cent per year, based on FSL Trust’s closing price of S$1.23 on July 21.
FSL Trust aims to rely on raised capital to grow the trust. ‘We have to keep buying and leasing out vessels,’ said Mr Cheong. This being so, ‘we are keeping an eye on the equity markets as it will affect how we will raise our capital’.
Philip Clausius, chief executive officer of FSLTM, said: ‘The acquisition of the three Yang Ming vessels announced in May will further raise DPU from the next quarter onwards.’
The third container ship from Yang Ming will be acquired in October and will cost US$70 million. FSLTM is currently in talks with the lead arrangers of its recent US$200 million revolving credit facility to raise it to US$265 million.
Once the deal is finalised, FSLTM would have injected US$350 million worth of vessels into FSL Trust, exceeding its initial target of US$300 million for this financial year.
Payment of the distribution of 2.8 US cents per unit will be made on Aug 26. Books close on July 30.
FSL – UOBKH
No surprises: 2Q08 DPU in line with expectations
First Ship Lease Trust (FSLT) has announced its 2QFY08 results. Charter income came in at US$20.7m, accounting for 24.3% of our forecasts, in line with expectations while cash available for distribution was US$14.0m, accounting for 25.0% of our full year forecasts. Distributions Per Unit (DPU) for 2QFY08 was 2.8 US cents, slightly better than managements’ latest guidance of 2.77US cents for the quarter.
Incentive Fee threshold crossed again: management electing for units. An incentive fee of US$239,000 was paid to the trustee-manager as the Distributable Cash Per Unit (DCPU) has exceeded the 115% benchmark quarterly DPU of 2.13 US cents. As in 1Q08, management has elected to receive 99.99% of the incentive fees in the form of new units. We calculate the dilution to be minimal with the impact to DPU being approximately 0.0007 US Cents per quarter.
Distributions expected to grow to 3.05 US cents per quarter, implying yield of 12.9%. FSLT took delivery of two 4,250TEU containers from Yang Ming Transport Corporation (YML) during 2Q08. These two vessels will fully contribute to FSLT’s charter income and DPU from 3Q08 and are expected to increase FSLT’s DPU to 3.05 US cents per quarter, implying an annualized yield of 13.0%.
Acquisition of third sister ship in Oct 08 could boost annualized yield to 13.4%. FSLT has a conditional agreement to acquire a third vessel similar to the first two from YML by end Oct 2008. FSLT is currently in discussion with its lenders to increase its revolving credit line from US$200m to US$265m, enabling FSLT to take delivery of the third vessel. While management has not guided on the accretion to DPU for the third vessel, we estimate that FSLT’s distribution could increase to 3.15 US cents/ quarter in FY09 assuming similar financing and charter terms are reached.
Stable and visible distributions: Maintain BUY. We continue to like FSLT for its stable and visible distributions which are supported by its long bareboat charters which have an average remaining lease term of approximately 9 years. The staggered redelivery of its diversified fleet of tankers, bulkers and containerships also helps to mitigate risks associated with the cyclical nature of shipping. With the completion of the acquisition of the second Yang Ming vessel, management is guiding for a DPU of 3.05 US cents per quarter from 3Q08 onwards, implying an annualized yield of 12.9%. We maintain our BUY recommendation on FSLT with a target price of US$1.24 (S$1.61) based on a yield based target of 9.0%.