Author: tfwee
MapleTree – CIMB
Holding ground
• In line. Distribution income of S$28.7m (+27%) and DPU of 1.48cts (-23%) are in line with Street and our expectations (27% of full-year forecast). DPU contracted 22.6% yoy due to additional units from a rights issue in Aug 08, while qoq growth was marginal at 0.7%. 1H09 DPU of 2.95cts forms 53% of our full-year forecast. Revenue in 2Q09 slipped 2.4% qoq mostly due to a depreciation of the HK$ and ¥ against the S$. The impact of this on net property income (-1.2% qoq) was mitigated by reduced property expenses (-11% qoq) while the effect on distributable income was cushioned by the hedging of income streams from Hong Kong and Japan.
• Occupancy stable at 98.3%; renewals on track. Portfolio occupancy improved 0.3% pt to 98.3% in Jun 09. About 65% of the leases expiring in 2009 were successfully renewed in 2Q09. Average rental reversion rate was flat. Tenant arrears remained small at 1% of annualised gross revenue.
• Capital management. As at end-Jun 09, MLT had S$107m due for refinancing in 2009. Some S$40m has been earmarked from 1Q09 for partial refinancing of its medium-term note due in Oct 09. The remainder will be financed with a S$29m term debt and S$38m revolving credit facilities. In the longer term, management intends to reduce the concentration of debt due in 2012. Current asset leverage is 37.8% (excluding S$40m of borrowings ear-marked for refinancing). Weighted-average cost of debt fell to 2.7% from 3% in 1Q09. Management reiterates that it would not resort to an equity rights issue to lower asset leverage, and future acquisitions are likely to be funded by debt and equity, rather than completely debt.
• Maintain Neutral and target price of S$0.62. We maintain our estimates and DDM-derived target price of S$0.62 (discount rate 9.4%). Although the pressure to maintain occupancy and rents remains, we are encouraged by its relatively high tenant retention rate of 80% and success in securing refinancing at lower interest rates. We believe MLT will be able attain our forecast distribution for FY09.
MapleTree – DBS
Beating expectations
• 2Q09 results above street expectations
• Robust occupancy of 98%
• Offers growth on top of stability
• Maintain BUY, TP S$0.70 based on DCF, offering 26% total return
Results slightly above. MLT reported a good set of 2Q09 results, beating market expectations. 2Q09 distributable income came in 26% higher at S$28.6m (DPU of 1.48 Scts), underpinned by 19% growth in topline and net property income to S$51.9m and S$45.7m respectively. Performance on a sequential basis remained stable.
Occupancy remains high at 99%. The better performance came primarily from MLT keeping retentions high at 80%, resulting in high occupancy of 98% vs our estimate of 95%. With two-thirds of expiring revenue secured, come 2H09 forward renewal activities will only account for c7% of total revenue. We reduce our vacancy assumptions to c2% resulting in upward DPU adjustment of c. 5.8-6.6% in FY09-
10F.
Pipeline in waiting – Up to S$300m of assets. Management shared that sponsor’s pipeline lies in waiting, with possible c. S$300m worth of assets to be injected into the trust over the medium term. However, any injection will be financed through a combination of debt and equity and have to be accretive to unitholders. Gearing is targeted to remain at current level of 38%.
Maintain BUY, TP S$0.70. Current price at 0.7x P/BV is in line to its smaller industrial peers is attractive. With a strong sponsor support and a S$3.0bn- unencumbered portfolio, MLT offers a potential for growth, on top of a stable FY09F-10F prospective yield of 10%. Maintain BUY, our TP is raised to S$0.70 premised on increased earnings and a slight lowering in equity risk premium (-50bps to 7.0% WACC).
FCOT – BT
FCOT gets nod for rights, property buy
ALL resolutions at Frasers Commercial Trust’s (FCOT) extraordinary general meeting, including its proposal to raise $214 million in a three-for-one rights issue and the acquisition of a property from its sponsor for $342.5 million, were passed by unitholders yesterday.
This confirms the $675 million in loans which FCOT earlier said it had secured from a consortium of lenders, on the condition that shareholders approved its proposed recapitalisation exercise.
The new loans, and proceeds from the rights issue, will be used to refinance a significant portion of FCOT’s existing debt, including all debt maturing this year, FCOT said in its June 30 announcement of proposed recapitalisation measures.
The rights issue had been widely expected as the trust’s gearing had risen to 58 per cent at the end of Q1 2009. The real estate investment trust (Reit) had gross borrowings of $945.5 million as at March 31, $624.5 million of which will mature in the second half of this year.
Showing its support, FCOT’s sponsor Frasers Centrepoint Limited (FCL), which has a deemed stake of 22.2 per cent in FCOT now, said that it would take up its entire pro rata entitlement of the rights units and is willing to subscribe for up to 32.7 per cent of all of FCOT’s rights units.
Unitholders’ approval yesterday confirmed that FCOT would buy Alexandra Technopark from FCL and pay for it by issuing convertible perpetual preferred units entitling FCL to a distribution of 5.5 per cent a year. FCL will also undertake the master lease for the property for five years, giving FCOT an annual rent guarantee of $22 million.
At the EGM, the shareholders also approved an amendment to expand FCOT’s current investment policy, allowing it to invest in real estate assets located in the Asia-Pacific region used for commercial purposes.
CCT – BT
CCT distributable income rises 33.2% for Q2
Trust will pay unitholders DPU of 3.33cents for first half of this year
CAPITACOMMERCIAL Trust (CCT), one of the island’s biggest office landlords, has posted distributable income of $48 million for the second quarter ended Q2 2009, up 33.2 per cent from the same year-ago period.
For the first half of this year, the trust will pay unitholders a distribution per unit (DPU) of 3.33 cents (adjusted for its recent rights issue). On an annualised basis, the payout works out to 6.72 cents, reflecting a distribution yield of 7.72 per cent based on yesterday’s closing price of 87 cents.
Q2 revenue rose 34.4 per cent or $25.6 million year-on-year to $99.97 million, due mainly to the acquisition of One George Street and Wilkie Edge as well as higher rental income due to positive rent reversions. Net property income improved 42.2 per cent to $73.3 million.
First-half gross revenue of $197.4 million was 35.6 per cent above that in the same period last year. CCT achieved net property income of $143.2 million in H1 2009, around 42 per cent higher than the same year-ago period. More than half of this increase came from acquisitions and the rest from organic growth.
The H1 2009 net property income was 4.3 per cent above the trust manager’s forecast, due largely to higher contribution from Capital Tower, 6 Battery Road, Starhub Centre and Market Street Car Park and the 60 per cent interest in Raffles City, offset partly by lower contribution from One George Street, Robinson Point, Bugis Village and Wilkie Edge. The trust also benefited from lower property tax, utilities and maintenance expenses. As well, borrowing costs were $14.1 million or 22.4 per cent lower than projected due to lowering borrowings and lower average cost of funds than forecast.
Of the $804.2 million net proceeds raised under CCT’s recent one-for-one rights issue, $664 million were used to repay part of CCT’s borrowings on July 3. Following this, gearing has been trimmed to 31 per cent. CapitaCommercial Trust Management Ltd said it can use up to $140 million of the remaining rights proceeds to repay much of the $235 million borrowings due next year.
In addition, the trust has an untapped balance of $665 million from its $1 billion multicurrency medium term note programme and about $3 billion worth of unencumbered properties – giving it enhanced financial flexiblity.
With its balance sheet bolstered from the rights issue, the immediate priority for CCT going forward is to ‘continue to focus on strengthening our fundamentals through astute asset management and prudent capital management to entrench CCT’s competitive edge’ said CapitaCommercial Trust Management Ltd’s (CCTML’s) CEO Lynette Leong.
In May and June this year, renewals and new leases for nearly 140,000 sq ft or 4.1 per cent of the trust’s portfolio net lettable area were inked at rental rates 45 per cent above the previous rent levels for the space involved on a weighted average basis.
As at end-June 2009, 92 per cent of this year’s forecast gross rental income has been locked in with committed leases.
Analysts expect challenging times ahead for office landlords like CCT amidst the massive new office supply to be completed in the next few years from a slew of projects, including Marina Bay Financial Centre, Ocean Financial Centre and 50 Collyer Quay.
However, Ms Leong argued that there is still possibility of positive rental reversion for CCT given that the average monthly passing office rent for its portfolio of $8.14 per square foot as at Q2 is below the average monthly market rental values – of $8.60 psf for prime office space and $10.15 psf for Grade A space as at Q2.
Shipping Trusts – BT
Eyes on shipping trusts’ results
FIRST Ship Lease Trust (FSLT) may have set the wheels of an inevitable slide in the fortunes of the shipping trusts for the rest of the year in motion with its downward revision of distribution per unit (DPU) on Tuesday.
The other two SGX-listed shipping trusts, Pacific Shipping Trust (PST) and Rickmers Maritime, are due to report their second quarter results today and in early August respectively. The outlook for the shipping sector in general and the shipping trusts specifically has been deteriorating over the past quarter.
FSLT cited a change in policy to repay more debt faster as the reason for reducing its DPU from the third quarter onwards. Both FSLT and Rickmers have been hit by loan-to-value covenant breaches in recent months.
FSLT is planning to use around half of its free cash flows to prepay loans, which should ease its woes with the banks. ‘We understand this new guidance is driven by discussions with lenders. We expect loan-to-value covenant concerns to become a non-issue once these discussions conclude,’ said OCBC Investment Research in a report released yesterday.
Analysts seem to be looking more kindly at FSLT in the wake of its new policy. ‘A consolation – in our opinion, this is finally a realistic number,’ added OCBC in its report where it rerated FSLT to a buy from a hold with a fair value of 76 cents.
OCBC went on to explain that ‘right since we initiated coverage over a year ago, we have been saying the trust’s aggressive payout was unsustainable’.
‘With this new approach, FSLT now looks more like a viable long-term investment vehicle for serious shipping trust investors,’ it concluded.
Rickmers is the next trust likely to face similar issues, and may even be in a slightly worse position because it has new vessel deliveries with unsecured financing coming due. ‘Funding risks are high with a US$130 million facility due next year as well as unfinanced capital expenditure of US$712 million,’ said DnB NOR.
SIAS Research, however, offered some hope for Rickmers by suggesting that Rickmers’ sponsor Rickmers Group will provide support with either financing or helping to negotiate postponement of the deliveries.
OCBC, however, was not as benign. In an earlier report it said: ‘We think the Q2 DPU decision may be driven by conflicting forces: it may make sense to cut or freeze distributions entirely to save cash to fund obligations and to appease lenders. But the cash saved is small relative to what is needed.’
Against this backdrop, PST looks the most stable relatively. The trust’s sponsor is locally-owned container line Pacific International Lines and it has no loans coming due in the next five years. It has also fully financed all its vessels and has no committed capex in the near future. The trust has a very conservative acquisition policy that should put it in a good position in the troubled times ahead.