Author: tfwee
First Reit – SGX
First REIT’s 2Q 2009 distributable income up 1.5% to S$5.3 million
DPU for the period increased 0.5% to 1.92 cents per unit
Annualised DPU of 7.66 Singapore cents translates to distribution yield of 11.3%
Resilient revenue structure
Low debt-to-property valuation ratio at 15.6%
SINGAPORE – 23 July 2009 – Bowsprit Capital Corporation Limited (“Bowsprit”), the Manager of First Real Estate Investment Trust (“First REIT”), Singapore‟s first healthcare real estate investment trust, today announced that its distributable income for the three months ended 30 June 2009 (“2Q 2009”) rose 1.5% to S$5.3 million.
The latest quarterly results confirm First REIT‟s resilient rental revenue structure. First REIT‟s distribution per unit (“DPU”) also rose 0.5% to 1.92 Singapore cents. Based on its closing price of S$0.675 on 21 July 2009 and the annualised DPU of 7.66 Singapore cents, First REIT registered a distribution yield of 11.3% at the end of the period.
ART – DBS
More room to run
• Results above street estimates
• Stability emerging – 2H09 should turn stronger
• Upgrade to BUY, TP S$0.99, offering total return of 22%.
Results higher than street. ART reported a commendable set of results, beating market expectations but in line with our estimates. 2Q09 distribution income came in 17% lower yoy to $11m (DPU 1.79cts). This was achieved on the back of a 7% dip in revenue to $43m and an 11% drop in gross profit (GP) to $23.4m. Signs of stabilization are emerging with topline, GP and distribution income recording single digit growth on a qoq basis. The group wrote down value of its assets by $61m or 4% of total portfolio value, largely from its Japanese and Chinese assets. Thus, book NAV declined to $1.36/unit. Consequently, gearing rose to 41%.
Stability emerging. Operating condition was challenging in 2Q09 with RevPAU dipping to $119, hindered by Singapore and China segments. Weaker business demand and competition from new supply in Beijing and Shanghai were a drag on RevPAU. The slide was partially offset by better contributions from Australia, Philippines and Vietnam. Looking ahead, there are nascent signs of demand leveling out, particularly in Spore (15% of revenue) with more take up from project groups. Australia, Vietnam and Philippines are expected to remain fairly stable. Management indicated that the present gearing of 41% and ICR of 3.4x are still within their optimal target of 45% and
ICR of 3x, and is unlikely to tap capital markets in the near term.
Upgrade to BUY. We are raising our FY09 and FY10 DPU estimates by 0.7% and 6% respectively to 7.2cts and 7.4cts, on the back of an improving operating environment. We have also adjusted our TP to S$0.99, assuming a slightly higher terminal growth of 2%, which is not excessive, given that half of its portfolio is in emerging markets. ART is one of the key beneficiaries of the global economic recovery, given its focus on corporate medium term accommodation demand and diversified tenant base. Expectations of positive GDP growth in the Asia Pacific region as well as event driven catalysts, such as completion of the 2 IRs in Singapore next year, should likely have a positive impact on the longer stay market.
CRCT – DBS
Rich valuations
• Results in line
• Asset devaluation brings NAV down to S$1.16
• Operational outlook remains mixed
• Valuation appears rich, downgrade to FULLY VALUED, TP S$1.04, representing potential downside of 20%.
Results in line. CRCT’s 2Q09 results were within expectations. Gross revenue and NPI increased by 15% and 17% respectively to S$30.4m and S$19.4m. This growth was brought about by a combination of an appreciating RMB vs S$ and increased occupancies at Qibao and Xinwu malls, which offset the 10% decline seen at Saihan. Distributable income grew by c.17% to 13.3m, translating to a DPU of 1.94 Scts. NAV down to S$1.16. CRCT devalued its assets by $9m or 1% of its portfolio, thus lowering its NAV to S$1.16. As a result, gearing increased slightly to 34%.
Mixed operational outlook. Portfolio occupancy weakened slightly by 1 ppt to 95.7%, as a result of lower occupancy level at Saihan mall (87% from 94%) – currently undergoing enhancement works, which is projected to only complete by end of the year. Rental reversions remained negative in WangJing and Xizhimen, which are offset by better performances at Xinwu and Saihan. Rental outlook remains tough, as tenants are cautious on their expansion plans and commitment to longer-term leases. CRCT is possibly looking to tie tenants on shorter leases to improve occupancy levels.
Downgrade to FULLY VALUED, TP $1.04. While we like CRCT for its exposure to the China consumption and urbanization story in the long term, valuation at current level – above its NAV appears rich, when compared against the sector’s average of c0.7x P/BV. As such, we downgrade the stock to FULLY VALUED, TP maintained at S$1.04 based on DCF ( WACC of 10% ,terminal growth 4%). CRCT offers a FY09-10F yield of 6.5-7.3%.
FSL – BT
FSLT cuts distributions to reduce debt
It will pay 2.45 US cents per unit for Q2, down from 2.8 a year earlier
FIRST Ship Lease Trust (FSLT) has cut its guidance for future payouts to unitholders to retain cash for repaying its debts, the latest sign of the pressure faced by shipping trusts here.
It will pay US$12.7 million, or 2.45 US cents per unit, for the second quarter, down from 2.8 US cents a year earlier and unchanged from the first quarter of this year.
That represents 74 per cent, or nearly three-quarters of the trust’s US$17.1 million net cash from operations for the three months to end-June. The remaining cash was used mainly to reduce its debts.
From the third quarter, however, it expects to pay out just 1.5 US cents per unit, or about half its free cash flow – the cash generated from operations, less any capital spending. The retained cash will be used to pay down its debt voluntarily to achieve ‘a more balanced capital structure’, it said.
FSLT’s share price fell yesterday after the announcement, ending 4.3 per cent lower at 66 cents.
Philip Clausius, chief executive of FSLT’s trustee-manager, said that ‘all our lease contracts continue to perform as expected’ despite the difficulties faced by the shipping industry worldwide.
‘Notwithstanding the very challenging market conditions, our broadly diversified lease portfolio remains robust and we expect it to continue generating stable cash flows.’
Its lease revenue rose 20.2 per cent to US$24.8 million in the three months to end-June, compared to a year earlier. FSLT said that none of its lessees has tried to renegotiate lease terms and that all lease rentals have been received promptly, including the rentals for this month.
The distribution reinvestment scheme, which gives unitholders the choice of receiving their distributions in the form of new units instead of cash, will not apply to the second-quarter payout, FSLT said. In the first quarter, the scheme saved the trust US$3.8 million in cash, which FSLT said would be used mainly to reduce its debt.
When FSLT listed here in March 2007, it had no debt. After listing, however, it funded a rapid expansion of its fleet by taking on more than US$500 million in bank debt to add 10 vessels to its initial fleet of 13. When the financial crisis struck last year, FSLT and Rickmers Maritime, another Singapore-listed shipping trust with substantial debt funding, were hit by higher interest costs as lenders invoked market disruption clauses and a plunge in demand for ship charters.
In October, FSLT cut its guidance for fourth-quarter distributions to 3.08 US cents per unit from 3.11 US cents due to the higher interest expense. In January, it said it would stop its policy of paying out all its distributable cash each quarter and instead use some of the cash to pay off its debt.
Since the start of this year, FSLT has been reducing its debt voluntarily, though it still has a large amount left. At the end of June, FSLT had US$501 million in secured bank loans outstanding, compared with US$513 million at the end of last year.
But FSLT stressed that all its vessels are fully financed and that it has no need to refinance any loans until 2012.
Mr Clausius said FSLT would continue to reduce its total debt and talk to lenders regularly to avoid any potential breaches of loan-to-value covenants that could be triggered by a fall in the value of vessels.
K-REIT – Nomura
First look
KREIT’s core operating performance in 2Q09F was better than we expected as management continued to roll over leases at higher rents. However, with further deterioration in portfolio occupancy, we believe focus will shift towards trading rental growth for occupancy, and we expect full-year rental income growth to move in line with our forecast. Trading at an implied EV of S$994psf, we believe downside risk in KREIT’s portfolio valuation is more than priced in.
Focus shift towards occupancy