Author: tfwee
PST – BT
Distribution cut only a guidance: PST
Plan is to use additional funds for possible acquisitions
PACIFIC Shipping Trust (PST) became the latest to jump on the bandwagon as it warned last week in its second-quarter results release that it may cut distributions for the third quarter.
However, its management hastened to add in a post-results briefing that the possibility of a distribution per unit (DPU) cut from 90 per cent to 70 per cent of distributable income was only a guidance.
Even if there is a cut, PST’s plan is to use the additional funds for possible acquisitions rather than for debt reduction as, unlike peers in the shipping trust sector, it has virtually no short-term debt. It also does not have any newbuilds on order, putting it in a good position to take advantage of low prices to purchase assets for future expansion.
PST has been saying since earlier this year that it is taking its time to look for yield-accretive acquisitions at good valuations in the chemical tanker and offshore supply sectors to diversify its income base. CEO Alvin Cheng said at the briefing that he will be looking more closely at acquisitions and has a planning horizon of 12 to 24 months.
PST is focusing on small to medium size vessels in the US$20 million to US$25 million range as the trust does not believe in the viability of extremely large sizes, Mr Cheng added.
The anchor handling tug and supply vessel (AHTS) market in particular holds the possibility of good bargains, PST believes. It is known that many small and medium size AHTSs were built speculatively over the past year and could now be on the market at attractive prices as their owners face a credit squeeze under current conditions.
‘We see hope of recovery in the next six to 12 months and we will position ourselves to capture some of the opportunities,’ said Mr Cheng.
On the flip side, however, the acquisition trail may lead PST into deeper waters than it has projected. ‘While no guidance is given on whether the distribution policy will be maintained at 70 per cent going forward, we do not rule out the possibility that the trust may further reduce payout ratio should the need arise to fund acquisitions,’ said UOB-KayHian in a research report released on Monday.
‘That said, we view this positively as ship prices have fallen sharply from their peaks in 2008. Accretive acquisitions may drive a re-rating of the stock,’ UOB-KayHian added as it maintained its ‘buy’ rating with a target price of 37 US cents.
PST units closed half a US cent higher at 26.5 US cents yesterday.
Fortune – BT
Fortune Reit Q2 distribution income dips
FORTUNE Real Estate Investment Trust (Reit) yesterday posted a net property income of HK$115.3 million (S$21.4 million) for the second quarter ended June 30. This is 0.3 per cent more than a year ago.
However, income available for distribution dipped 0.7 per cent to HK$78.9 million. Distribution per unit was 9.54 HK cents, slightly below the 9.72 HK cents for the same period last year.
The occupancy rate across Fortune Reit’s portfolio of 11 retail malls in Hong Kong slipped from 95.5 per cent as at March 31 to 92.1 per cent as at June 30. Offsetting weaker occupancies was an increase in the average passing rent, which was HK$27.60 psf as at June 30.
Fortune Reit said that its suburban malls have stood ‘reasonably well’ in the downturn because they ‘serve a captive population’ and cater to non-discretionary spending on necessities and services.
The Reit also benefited from higher valuations of its malls and reaped a revaluation gain of HK$281.3 million. Its portfolio was valued at HK$8.9 billion as at June 30 – 3.5 per cent higher than at Dec 31, 2008.
Fortune Reit’s gearing at the end of Q2 was 25.7 per cent, and it has more than HK$2.37 billion worth of borrowings coming due in a year or less. It said that its manager ARA Asset Management (Singapore) is in discussion with various banks to refinance a term loan due in June 2010.
For the first half ended June 30, Fortune Reit saw a 4.1 per cent year-on-year rise in net property income to HK$238.4 million. Income available for distribution gained 7.1 per cent to HK$161.7 million. H1 DPU was 19.60 HK cents, exceeding the 18.51 HK cents a year ago.
Unitholders will receive a distribution of 19.60 HK cents per unit on August 28, for the period Jan 1 to June 30.
On future plans, ARA Asset Management (Singapore) chief operating officer Justina Chiu said that the manager will focus on ‘retaining quality tenants’ and step up on marketing activities ‘to assist tenants in keeping up their sales momentum’.
Fortune Reit lost five HK cents yesterday to close at HK$4.07.
Fortune – JPM
Steady operational performance, waiting for liquidity discount to narrow
• 1H09 results largely in line with expectations: Fortune REIT announced a 1H09 DPU of HK$0.196, up 5.9% Y/Y, and just 1.1% below our estimate. Gearing was a healthy 25.7%. Despite the tough environment, rental income remained fairly stable in Fortune REIT’s portfolio. Investment properties were revalued up by 3.5%, mainly on cap-rate compression of around 50bp (cap rates at 5.25-6%).
• We turn slightly optimistic about the retail rental market outlook: With early signs of stabilization in the retail market, and a slightly better economic outlook for 2010, we now only assume a 6% decline in FY09 spot rents and a 3% recovery in FY10 (compared to -10% in FY09 and 0% in FY10). As a result, we tweak our DPU forecast by -1% for FY09 to account for higher maintenance costs alongside some renovation projects, while we raise our FY10 DPU forecast by 6%. Our NPV also increases by 22.5% as a result of the higher DPU estimates, higher longterm growth rate (from 0.1% to 0.2%) assumption, and lower discount rate (from 7.72% to 6.95%) assumption.
• Valuation still looks appealing: The stock is still trading at a clean yield of 8.3% for FY09E-FY11E, which is still high relative to other Hong Kong REITs which are trading at an average clean yield of 5.6%. We believe there is room for further re-rating of the stock in the current low-interest-rate environment. The yield spread between Fortune REIT and 10-year HK Exchange Fund notes is wide at 680bp versus its longterm average of 384bp since its listing in 2003. We believe the liquidity discount on Fortune REIT should gradually narrow.
• Maintain OW, raise our Dec-09 PT to HK$4.9: We increase our Dec- 09 PT by 22.5% to HK$4.9, on par with our DDM-based NPV estimate. We used a discount rate of 6.95% and a long-term growth rate of 0.2%. Risks to our PT include sharper-than-expected rental declines, higherthan- expected vacancy rates, and a prolonged economic recession.
Cambridge – DBS
Building up its coffers
• 2Q09 results showed stable performance
• Private placement exercise leads to c10% dilution
• Impact on AEI activities only in the medium term
• Downgrade to HOLD, TP S$0.41 based on DCF.
Results in line. Cambridge Industrial Trust (CREIT) 2Q09 results were in line with expectations. Results were underpinned by a portfolio mainly secured on sale and leaseback leases. Distributable income came in 14% lower at S$10.7m (DPU of 1.345 Scts), largely a result of management fees paid in cash and higher borrowing costs.
Private placement- to National Australia Bank/ Oxley. In a recent announcement, Cambridge REIT announced a private placement exercise @ S$0.39 per unit to National Australia Bank & Oxley to raise cS$28m of proceeds. Total shares to be issued are estimated to be c.10% of share base.
Proceeds for asset enhancement purposes. Proceeds from the placement will be utilized to embark on asset enhancement initiatives (50-70%) and general working purposes (50-30%). While we understand that several of their assets have yet to fully utilize their plot ratios, raising equity at c. 12 -13% yield does present a relatively high cost of capital hurdle to overcome in order to make any investments accretive. In addition, Cambridge REIT may have to seek respective tenants’ approval before embarking on any meaningful enhancement works, which could mean that the potential impact on earnings is likely to be delayed.
Downgrade to HOLD. DPU is expected to be diluted by c7-9% in FY09-10F to c. 4.8 – 4.7 Scts. Our DCF based TP will be reduced to S$0.41, which is close to its closing price. As such, we downgrade to HOLD. Cambridge REIT currently offers a FY09-10F yield of 12%.