FSL – DBSV
Refinancing risks loom
At a Glance
• 2Q11 DPU maintained at 0.95 UScts
• Proceeds of recent placement used to part-finance the DPU-accretive acquisition of two LR2 product tankers
• Distribution growth expected in FY12, but refinancing of ~US$230m debt looms in April 2012; maintain HOLD
Comment on Results
Spot market for product tanker improves to an extent. These tankers generated bareboat charter equivalent revenue of US$3.2m (inclusive of US$1.6m attributable to 1Q11) in 2Q11 vs. a US$1.1m loss in 1Q11, but the combined 1H11 bareboat revenue of US$2.1m fell significantly short of the US$7.6m bareboat charter revenue that these vessels would have earned in a 6-month period prior to redelivery last year. Cash earnings was thus, up 17% q-o-q to US$13.5m, and after loan prepayment of US$8.0m, net cash available for distribution amounted to US$5.5m, just about sufficient to pay out the 0.95 UScts DPU declared for the quarter. FSL Trust also recorded US$2.5m provisions in 2Q11, given that it lost its case against Daxin Petroleum in the PRC court.
Outlook and Recommendation
NAV dilutive, DPU accretive acquisitions. FSL Trust raised about US$15m via an equity placement last month and along with proceeds from previous round of placements, acquired two product tankers for US$46m each. These will be leased back to Denmark based TORM Tankers, and we estimate each vessel could add about US$6m charter revenue per year. As expected from a new equity issue at a discount to current market price, the placement will be dilutive at the NAV level, reducing end-FY11NAV by about 4.5%, in our estimate. However, given that the vessels will be 50% debt funded, we expect DPU accretion of about 2%/ 9% in FY11/12.
Balance sheet still a worry. Post-acquisitions, net gearing could go up to 1.4x from current 1.2x and the Trust also has a pending refinancing target of close to US$230m debt by April 2012. Our TP of S$0.43 and HOLD rating remain unchanged, pending further clarity on asset values and refinancing plans.
MLT – CIMB
Acquisition-fuelled growth
• In line; maintain OUTPERFORM. At 25% of our full-year forecast, MLT’s 2Q11 DPU of 1.60 Scts (+6.6% yoy) met our and consensus estimates. 1H11 DPU of 3.15 Scts works out to 48% of our full-year estimate. There were no major surprises. The positives were occupancy improvements and upward rental reversions, which offset higher operating costs stemming from repairs in Japan and property conversion in Singapore. Management is actively looking for acquisition opportunities and has identified a local property with redevelopment potential. We incorporate the change in year-end in FY3/12 but keep our S$500m acquisition assumption, DPU estimates and DDM-based target price of S$1.05 (8.6% discount rate) pending the analyst briefing. MLT continues to offer an attractive yield of 7%. We maintain our OUTPERFORM call, with the catalysts being accretive acquisitions and AEIs.
• Net property income (NPI) up 25% yoy and 4% qoq. 2Q11 topline rose 27% yoy, thanks to contributions from newly-acquired assets, partially offset by the FX impact from a stronger S$ though the DPU impact was mitigated by FX hedges. The portfolio also benefited from positive rental reversions and a 0.6% pt improvement in occupancy, driven mainly by Singapore assets. NPI however grew by a more muted 25% yoy due to higher property expenses arising from repairs in Japan and the conversion of a local property in 2Q11. Distributable profit increase 26% yoy but DPU was up by a lower 7% due to an enlarged unit base after its equity fundraising in Oct 10. Management also divested two local properties in the quarter and plans to distribute net gains of S$2.1m (0.09 Scts/unit) over the next three quarters.
• Property acquisition and redevelopments. Management continues its search for acquisition opportunities, with a focus on South Korea, Singapore, Japan, China and Malaysia. It also seeks to extract greater yields from its portfolio through conversion and redevelopments. It is in the midst of seeking authorities’ approval for the redevelopment of a local property with underutilised plot ratios.
• 41% asset leverage. Asset leverage was at 41% as at end-2Q11, still below management’s medium-term target of 40-50%. Management successfully rolled forward S$102m debt (7% of total debt) maturing in 2011 and is in advance negotiations to refinance/extend debt maturing in 2012 (31% of total debt).
Suntec – CIMB
Preparing for asset rejuvenation
• Slightly above. 2Q11 DPU of 2.53 S cts was slightly above our and consensus estimates, forming 27% of our FY11 forecast. 1H11 DPU formed 52% of our full year estimate. The outperformance came mainly from lower-than-expected interest costs. Rentals and occupancy for Suntec City Mall continued to weaken though we believe that this could be in preparation for any potential asset enhancement initiatives to rejuvenate the mall. Likewise observations by other office landlords, leasing momentum appears to have slowed though occupancy within its office portfolio remains strong. We tweak our FY11-12 DPU estimates by -2% to +2% for lower interest expense in FY11-12 and a lower income support assumption in FY12. Our DDM-based target price is, however, unchanged at S$1.61 (discount rate: 8.1%). We maintain our NEUTRAL call. Potential re-rating catalysts are stronger than-expected rentals and AEIs at Suntec City Mall.
• Net property income (NPI) slipped 1% yoy due to weaker performance from Suntec City Mall. Distributable income, however, rose 22% yoy from contributions from Marina Bay Financial Centre Phase 1 (MBFC 1), which was offset by lower income support from One Raffles Quay. 2Q11 DPU was, however, flat yoy due to a larger unit base from a unit issuance to partly fund the acquisition of MBFC 1.
• Slower office leasing momentum. Suntec City’s office occupancy remained stable in 2Q11 at 99.5% with negative rental reversions appearing to have stabilised on a qoq basis. As the pace of office leasing momentum is likely to have slowed, achieved rents climbed only 1% (vs. 1Q11: 13%) from S$9.22 psf to S$9.28 psf, notwithstanding the minimal remaining office leases expiring in FY11. Management, however, notes continued demand for office space from tenants within the IT, oil & gas, legal and shipping industries.
• Preparing for rejuvenation of Suntec City Mall. Committed retail passing rents (S$10.16 psf, -1% qoq) drifted lower for the fifth quarter in 2Q11. Occupancy has also slipped by 0.8% pts to 97.1% though management has successfully renewed and lowered lease expiries to about 12% (1Q11: 19%) by retail portfolio (by NLA) in 2Q11. With a weakening portfolio, we anticipate plans for AEIs to rejuvenate the mall with any AEIs likely to be debt-funded.
MLT – BT
MapletreeLog Q2 net up 25%
MAPLETREE Logistics Trust has achieved net property income of $57 million for the second quarter ended June 30, up 24.6 per cent from a year ago. Distribution per unit (DPU) came in at 1.6 cents, against 1.5 cents a year earlier.
Gross revenue for the latest quarter rose 26.6 per cent to $65.8 million on the back of contributions from completed acquisitions in Singapore, Japan and South Korea. This was further boosted by positive rental reversion and higher occupancy of 98.9 per cent, said Mapletree Logistics Trust Management Ltd (MLTM), manager of the trust.
Said MLTM CEO Richard Lai: ‘Despite the continued uncertain economic environment experienced in Q2 2011, MapletreeLog’s portfolio has demonstrated its resilience and robustness, delivering a strong set of results. Organic growth was also achieved through proactive asset management initiative which saw the conversion of a property in Singapore from single-user asset to multi-tenanted building in Q1 2011. Overall, the portfolio experienced organic growth of 5.1 per cent in Q2 2011 against Q2 2010.’
Following the recent crises in Japan, MapletreeLog said it has commenced its repair efforts for the affected properties. Except for Sendai Centre, the other properties suffered limited damage, and minor repairs have been carried out. Total repair cost to be expensed as a result of the damage is estimated to be about $1 million, of which $0.5 million was recognised in Q2. The balance will be accounted for in Q3.
Sendai Centre has been declared structurally sound and repair works are underway to restore the chilled facility to full operational effectiveness.
As at June 30, MapletreeLog’s portfolio comprised 99 properties with a book value of approximately $3.6 billion.
MapletreeLog said it continues to pursue its growth strategy with inroads having been made into South Korea. Besides South Korea, it said it continues to see acquisition opportunities in Singapore, Japan, China and Malaysia. It will also broaden its investment horizon to new markets.
Suntec – BT
Suntec Reit DPU for Q2 edges up
Income available for distribution jumps 22.3% to $56.2m
SUNTEC Real Estate Investment Trust’s income available for distribution rose 22.3 per cent to $56.2 million for the second quarter ended June 30.
However, distribution per unit (DPU) for Q2 2011 came in only marginally higher at 2.532 cents as compared with the 2.528 cents recorded during the same period a year ago. This gives an annualised yield of 6.6 per cent based on yesterday’s closing price of $1.535.
Coupled with distributions in the first quarter of 2011, Suntec Reit’s H1 2011 DPU now stands at 4.92 cents.
ARA Trust Management (Suntec) Ltd, the manager of Suntec Reit, said yesterday that the gross revenue for the second quarter of $61.3 million came in 1.8 per cent lower year on year due to weaker office and retail revenues.
Gross revenue for H1 2011 stands at $122.3 million, down about 2 per cent year on year.
Correspondingly, Q2 2011 and H1 2011 net property income for the Reit came in 1.1 per cent and 1.7 per cent lower year on year at $46.9 million and $93.6 million respectively.
But overall committed occupancy remains stellar as at end June. The committed occupancy of Suntec City Office Towers stood at a high of 99.5 per cent while the Park Mall office maintained full occupancy take-up.
Similarly, amongst the Reit’s retail properties, committed occupancy stayed stable at 97.1 per cent for Suntec City Mall and 100 per cent for both Park Mall and Chijmes.
For jointly controlled properties, One Raffles Quay attained full occupancy status while MBFC Properties’ committed occupancy numbers came in at 97.4 per cent.
The overall committed occupancy for Suntec Reit’s office and retail portfolio stood at 99.1 per cent and 97.7 per cent respectively as at June 30.
Suntec Reit’s shares were last traded at $1.535.