CitySpring – DBSV
Robust capital plan remains top priority
At a Glance
• 3Q11 DPU maintained at 1.05Scts; no surprises
• Receives temporary respite from S&P with respect to credit rating of Basslink bonds
• Catalysts only possible after management reviews capital structure; maintain HOLD with DDM-based TP of S$0.58
Comment on Results
Cash earnings down q-o-q. Revenues were up 12% y-o-y and 3% q-o-q to S$107m on the back of higher tariffs at CityGas and a stronger AUD. Cash earnings, while up 67% y-o-y owing due to better margins at CityGas, was down almost 20% q-o-q to about S$18m as Basslink cash earnings disappointed. Basslink again saw negative CRSM (risk sharing mechanism) payments to the tune of A$5.2m, which affected results. The Group paid out 1.05Scts for the quarter, in line with the guided 4.2Scts for FY11. About 56% of net cash generated was distributed in 3Q11, and gross cash buffer improved to S$123m.
Outlook and Recommendation
Bond rating concern diminishes in near term. To recap, S&P had put the senior secured debt issues at Basslink on CreditWatch negative. If the ratings on the outstanding bonds are downgraded, Basslink will be barred from repatriating distributions to CitySpring. Recently, the Trustee-Manager put A$20m in an escrow account to meet S&P criteria and subsequently, Basslink has been removed from the CreditWatch list and its BBB- rating affirmed (with a negative outlook). Thus near term concerns have been alleviated but the Trustee-Manager will still have to review the capital structure of the Group by September 2011 to ensure stable dividends from Basslink. In view of this uncertainty and the continued dispute with Hydro Tasmania regarding the interpretation of CRSM dues to the tune of A$6.9m – which could culminate in litigation – we maintain our HOLD call on the stock at an unchanged TP of S$0.58. The Trust will also have to refinance S$142m of corporate loan due in August 2011. Acquisition catalysts are unlikely in the near term given the management focus on putting in place a “robust” capital plan at the earliest.
Rickmers – BT
Rickmers raises Q4 DPU by 5%
RICKMERS Maritime raised its distribution per unit (DPU) for its fourth quarter ended Dec 31, 2010 by 5 per cent, from 0.57 US cents to 0.6 US cents.
Increased for the first time in four quarters, the DPU represents a payout of 14 per cent of income available for distribution. The trust posted a 31 per cent rise in net profit for the quarter, from US$15.3 million to US$19.9 million.
The jump in profit was driven primarily by a US$7.3 million writeback in impairment charges on one of its vessels – Kaethe C. Rickmers – because the vessel’s charterer is extending the charter period for another 12 months at a higher daily rate of US$23,888, compared with its current rate of US$8,288.
The new rate will kick in from March 25, restoring the revenue of the trust’s portfolio to ‘pre-crisis levels’, according to Thomas Preben Hansen, chief executive officer of Rickmers Trust Management Pte Ltd (RTM).
Its income available for distribution for the quarter rose 2 per cent, to US$18.09 million while revenue dipped 4 per cent, from US$38.1 million to US$36.8 million, for the quarter. For the full year, the trust posted a net loss of US$28.6 million, against a net profit of US$40.7 million from a year ago.
It owed the hit to its bottom line largely to a one-time US$64 million compensation payment in Q3 for cancelling its order of seven vessels in the throes of the financial crisis. Its revenue stayed flat, inching up one per cent to US$147 million, weighed down by lower income contribution from Kaethe C. Rickmers, after it was re-delivered to the trust from Maersk early last year.
For the full year, income available for distribution shrank 5 per cent to US$72.13 million while its DPU dropped 41 per cent, from 3.91 US cents to 2.31 US cents. It repaid a total of US$105 million in bank debt in FY 2010 and has US$671 million in bank debt outstanding, as at the end of last year.
The trust posted a fleet utilisation rate of 99.93 per cent for the quarter and 99.88 per cent for the full year. According to Mr Hansen, the trust has no immediate plans to expand its fleet of 16 containerships or to diversify into other types of vessels.
‘We will be over time evaluating the various transactions in the market, but for the time being, ship values have increased a lot and there will be more increases to come. We will focus on our balance sheet,’ he said yesterday.
From today, Gerard Low Shao Khangwill take over from Quah Ban Huat as RTM’s chief financial officer. Mr Quah had tendered his resignation in October last year, in order to ‘pursue other interests’.
Cambridge – Phillip
Full Year 2010 Results
•Full year revenue of $74.2 million, net property income of $65.1 million, distributable income of $44.7 million.
•4Q10 DPU of 1.193 cents, bringing full year DPU to 4.892 cents.
•Buy for attractive yield of 9.4%, maintain target price of $0.61
Results slightly better than forecast
Results came in slightly better than our forecast. Revenue and DPU came in 2.3% and 4.8% higher than our forecasts respectively. However growth was flat on a y-y basis. Full year revenue was $74.2 million (-0.3% y-y), net property income was $65.1 million (flat y-y) and distributable income was $44.7 million (+1.1% y-y). Full year DPU was 4.892 cents (-8.7% yy). The flat to slight y-y drop was mainly attributed to the loss of revenue from the divested assets. During the year, Cambridge sold $68.1 million worth of assets. On the other hand, the decline was mitigated through addition of $70.8 million of properties Cambridge purchased. DPU dropped mainly due to larger unit base arising from two rounds of private placement to raised $$90.4 million with the issuance of 178 million units.
Quarterly results review
Revenue was affected in FY10 due to the gradual divestment of assets. However revenue rebounded in 4Q10 from the contribution of the acquisitions. Quarterly DPU displayed a corresponding trend. DPU was also affected due to the larger unit base arising from the private placement.
Portfolio update
Property portfolio value stands at $928.5 million as at 31 Dec 2010. This follows a $48.2 million upward yearly revaluation of the portfolio, consisting of 43 properties. Cambridge still has $22 million of assets earmark for divestment. Gearing is 34.7% with total debt of $339.2 million and will reduce to 33.4% as the manager has committed to pay down $20 million on 17 Feb 2011.
On a separate note, 3 properties are affected in varying degrees due to the construction of the Tuas West MRT extension and will be repossessed by the Singapore Land Authorities by 2013. We estimate the pro-rated valuation of the affected land area is $54.5 million.
Conclusion
Results came in within our expectations. We had noted the impact of lower DPU due to loss of income from divested assets as well as dilution from a larger unit base in our previous reports. Cambridge is almost done with the divestment program. The REIT should begin accretion from 2011 given that management had outlined their expansion strategy. We felt the compulsory land acquisition came as a derailment to the strategy as we do not think the 3 properties are part of the intended divestment assets. Nevertheless we are forecasting this year DPU to be 4.864 cents which translate to an attractive 9.4% dividend yield. We are maintaining our target price of $0.61, but upgrading our recommendation to buy in view of the high yield.
A-REIT – DBSV
First deal in China
• Sealed S&P contract of a business space property for RMB587.9m
• Earnings impact is small, but acquisition is a test of its execution ability in China
• HOLD Call, TP S$2.19 maintained.
Acquiring a business space property under construction The 79,880 sqm GFA business space property is well located in Jinqiao Export and Processing Zone (“JEPZ”), a well established and connected development zone in Pudong New District, Shanghai. The purchase will cost RMB 587.9m (S$117.6m) and complete towards end 2012 upon TOP of the property.
No pre-commitments yet. It seems to us that A-REIT has taken a leap of faith in acquiring the development project without any pre-commitments to-date. This, in our view, deviates from management’s more conservative approach towards acquisitions where the property usually comes fully/partially leased. Nevertheless, we believe this will provide A-REIT with the opportunity to showcase its execution ability, while there is ample time of 2-years to fill the space – concerted marketing efforts through its existing tenant network and leveraging on its parent, Ascendas Group’s established presence in China. In addition, the vendor has undertaken to guarantee RMB67m rental, (or a gross rental yield of 11%), hence mitigating leasing risk for A-REIT.
Assuming that (i) A-REIT is able to fill up the space upon completion by end 2012, (ii) at an average rental rate of RMB 2.30/day or a topline of RMB 67m, and (iii) funded with a 60-40% equity/debt ratio, DPU impact is estimated to <1%.
Maintain HOLD, TP S$2.19. While we like A-REIT for its diversified portfolio and management’s track record of delivering earnings growth for unitholders, current upside to our TP is limited. As such, we maintain our HOLD rating and DCF-derived TP of S$2.19. A-REIT currently offers a yield of 6.4-6.9%
Cambridge – DBSV
Like a high yielding bond
At a Glance
• Stronger financials with gearing heading towards 33.3% target
• More acquisitions to boost earnings in 2011
• Attractive and highest yield in SREIT sector. BUY and TP S$0.58 maintained
Comment on Results
4Q10 results in line with expectations. Cambridge REIT (“CREIT”) posted gross revenues and net property income of S$19.1m (+1%yoy) and S$16.8m (+0.7% yoy) respectively. The slight uplift in rental income was attributed to contributions from 3 new properties acquired in 4Q, offsetting income loss from certain properties and strata units in Enterprise Hub divested in the FY. Distributable income fell 0.4% to S$12.0m, translating to a DPU of 1.14Scts. CREIT also reported a 5.7% increase in portfolio valuation compared to Jun 10 and raised NAV slightly to 60.7 Scts.
Gearing level to head towards 33.3% target. CREIT has lowered its gearing through periodic repayment of debts with monies from its divestment activities. It will further lower its current gearing of 34.7%, after repaying S$20m loans.
Acquisition strategy to continue in 2011. CREIT will complete the acquisition of 2 assets and embark on its first built-to-suit project in coming months, funded by the placement proceeds raised in 4Q10. The manager is likely to seek out more acquisitions in 2011 backed by its improved financial flexibility and lower gearing position.
Recommendation
BUY, TP S$0.58 based on DCF. CREIT continues to offer an attractive FY11-12F yield of 9.5-9.7%, the highest in the S-REIT sector. With improved income visibility post restructuring, we believe CREIT deserves higher valuation. Maintain BUY and TP of S$0.58, offering a total return of 20%.