FSL – DBSV
A quarter of woes
At a Glance
• 2Q10 DPU down 37% q-o-q to 0.95 UScts as Trust deals with series of recent negative events
• No DPU guidance for 3Q; two product tankers trading on spot market impair income visibility
• Maintain Fully Valued call with revised TP of S$0.40
Comment on Results
The lower DPU payout follows premature re-delivery of two product tankers by customer Groda Shipping, consequent arrest of the vessels and loss of long-term charter-hire from the two vessels. Revenue of US$28.5m included the US$6m security deposit received from defaulting counterparty. Excluding that, revenue would have been down 8% q-o-q owing to the default. Trust expenses were higher as well by about US$3.5m due to one-off expenses. Moreover, given the termination of the long-term lease contracts, the Trust recognised a non-cash impairment loss of US$7.9m and registered an accounting loss of US$6.1m in 2Q10.
Outlook and Recommendation
The product tankers have since been released after FSL Trust put up guarantees amounting to a total of US$4.4m at the respective courts. Lawsuits are now ongoing under respective jurisdictions. Separately, FSL Trust has filed a writ in the Supreme Court of Singapore against Daxin and the bareboat charterers of the 2 vessels but it is unclear at this point what the outcome of theselegal actions will be, and whether FSL Trust will be able to recover the guarantee amounts. Meanwhile, the two product tankers will be deployed on the spot market, but current day rates are much lower than previous rates and utilisation could be volatile. The only positive in this set of results is the charter-free valuation of its fleet, which improved by about 10% q-o-q to US$686m. This implies a safe 156% LTV coverage at the end of waiver period in June 2011.
We raise FY10F DPU forecast by 7% to 4.2UScts to account for the slightly higher-than-expected DPU payout in 2Q10, but given the potential volatility in future cash flows and lack of DPU guidance, we maintain our Fully Valued call at a slightly higher TP of S$0.40 (15% target yield). We recommend a switch to Pacific Shipping Trust (BUY, TP US$0.37) for more stable distributions.
MLT – OCBC
Occupancy dips as manager re-positions assets
2Q10 below expectations. Mapletree Logistics Trust (MLT) reported 2Q10 gross revenue of S$52m, flat YoY and up a marginal 1.1% QoQ. Net property income of S$45.8m inched up 0.3% YoY and 0.1% QoQ. Unitholders will receive a payout of 1.5 S cents, up 1.4% YoY and flat QoQ. DPU was 5% below our 1.58 S cents estimate as positive contributions from recent acquisitions were offset by higher vacancy rates. As at 30 Jun, MLT recorded portfolio occupancy of 97%, down from 98% three months ago. This was due to higher vacancies in Singapore (occupancy -100 basis points), Hong Kong (-300 bps) and Malaysia (-500 bps). We understand this is as the manager has chosen not to renew leases of certain singletenanted buildings because of unsatisfactory rent negotiations. Instead it is increasing its weighting to multi-tenanted buildings with three assets converted from single-user assets to multitenanted buildings during the quarter (two in Malaysia and one in Singapore).
2H10 could be stronger. To date, the manager has successfully renewed and replaced 42% of the leases due for renewal in 2010; approximately 10% of the portfolio gross revenue is due for renewal in 2H10. It noted some mild positive reversions (+0.3% to +0.5%). MLT said that “while the economic environment has shown signs of improvement, market sentiments remain cautious in the geographies in which [it] operates.” 2H10 income could be boosted (in our opinion) by full-year contributions from the three assets acquired in 2Q10 and also from contributions from Natural Cool Lifestyle Hub (expected purchase completion around Sep 2010). Additionally, with strong leasing enquiries, the manager believes occupancies should improve over 2H10.
Valuation. Our FY10 DPU estimate falls 3% to 6.2 S cents as we adjust our estimates for actual 1H10 results. With leverage of approximately 39.8% debt-to-assets (our estimateincluding the Natural Cool acquisition, 38.8% actual as at 30 Jun) versus a medium-term target of 45%, MLT has debt headroom for roughly another S$165m worth of acquisitions. MLT is likely to speed up its acquisition pace beyond that quantum, with S$300m worth of assets in its sponsor pipeline already at or nearing completion. As such, we believe equity fund-raising is likely in the coming months, potentially through another private placement. With an estimated 4.2% total return, we downgrade MLT to HOLD with a marginally higher S$0.86 fair value [prev: S$0.84]. Potential catalysts for an upgrade include announcements on substantial acquisitions or development projects.
StarHill Gbl – OCBC
2Q10 in line; valuations still compelling
2Q10 in line. Starhill Global REIT reported 2Q10 revenue of S$37.2m, up 11.4% YoY but down a marginal 1.1% QoQ. Revenue was boosted by the acquisition of David Jones Building in Perth, Australia on 20 Jan 2010. This was partially offset by lower revenue from the office component of Starhill’s Singapore assets. Net property income of S$28.8m was up 6.9% YoY but down 1% QoQ. Starhill declared a 2Q10 DPU of 0.91 S cents, down 52.1% YoY (because of an enlarged unit base post-rights issue) and down 4.2% QoQ. Starhill acquired Malaysian assets Starhill Gallery and Lot 10, on 28 Jun, and made its first distribution payment on the convertible preferred units issued in relation to the acquisitions. The results were in line, with revenue and NPI within 3% of our estimates. DPU was just 3% higher than our 0.88 S cents estimate.
Portfolio performance steady. Office and retail occupancy at Ngee Ann City (NAC) was steady at 95.6% and 100% respectively, flat compared to 31 Mar. Wisma Atria (WA)’s retail occupancy declined 80 basis points from 31 Mar and 150 bps from 31 Dec to 98.5%. WA’s office occupancy also declined to 81.4%, down 60 bps from three months ago but up 390 bps compared to six months ago. Elsewhere, occupancies were stable at 100% for Starhill’s China and Australia assets. The Japan assets, meanwhile, achieved an impressive 700 bps increase in occupancy from 31 Mar to 95.6%; this as Starhill brought in three new tenants over 2Q10. Starhill is leveraged at 30.8% debt-to-assets as of 30 Jun; it has already secured sufficient financing to address the S$570m in debt maturing later this year.
Valuation. We have adjusted our expense assumptions marginally with FY10-11 DPU up 0.5% and 1.1% respectively to 3.84 S cents and 3.96 S cents. Starhill is up 8.3% since our initiation on 02 Jul. Nevertheless, we continue to find valuations compelling at a significant 35% discount to book value. We believe this discount is unjustified when considering Starhill’s high-quality assets, healthy balance sheet and its strong sponsor. Our DDM-derived fair value estimate of S$0.65 (6.7% discount rate, 0.5% terminal growth rate) is intact; this is equivalent to a fairly reasonable (in our opinion) 0.72x priceto-book. With an estimated total return of 16.7%, we maintain our BUY rating on Starhill. Key risks to our view include macroeconomic headwinds, increasing competition in the retail space, foreign exchange risk and changing regulatory and taxation regimes.
StarHill Gbl – BT
Starhill gets $496m facility
STARHILL Global Reit secured a three-year, $496 million facility from a five-bank syndicate. DBS, OCBC Bank, Commonwealth Bank of Australia, Societe Generale and ING Bank took part. OCBC was facility and security agent.
The facility includes a $50 million revolving credit facility and will be secured over Starhill Global REIT Trustee’s interest in shopping and office complex Ngee Ann City.
The Reit manager said the facilities will be used to refinance $447 million of secured debts comprising a $220 million two-year facility of which $67 million is outstanding and a $380 million five-year term loan, both maturing in September 2010. The rest of the money raised will be used for working capital and general corporate funding.
FSL – BT
FSL Trust’s DPU for Q2 slumps 61%
DISTRIBUTION by First Ship Lease Trust (FSL Trust) fell 61.2 per cent year on year to 0.95 US cents per unit for the second quarter, as the trust sank into the red on an impairment charge following the re-delivery of two vessels.
FSL Trust posted a net loss of US$6.11 million for Q2 ended June 30, compared with a US$2.35 million net profit a year earlier.
This resulted from the recognition of a US$7.87 million charge after long-term charters for the vessels FSL Hamburg and FSL Singapore were terminated prematurely.
The trust’s Q2 distribution per unit (DPU) represents 33 per cent of generated net cash, versus a payout of 55 per cent for Q1.
FSL Hamburg and FSL Singapore were re-delivered in May by lessees Rovina Shipping Company and Messino Shipping Company – affiliates of Cyprus-based Groda Shipping & Transportation – after they cited cashflow problems.
The vessels were subsequently seized in China and Japan respectively on claims by Daxin Petroleum that it had not been paid for bunkers supplied to them.
The vessels have seen been released after FSL Trust posted bail for them.
FSL Trust has also sued Singapore-based firm Daxin, three individuals representing Daxin in that period and Rovina and Messino – which FSL Trust says are linked to Daxin – for damages suffered as a result of the arrests of the vessels. It also wants legal action against the vessels dropped and is seeking other forms of relief.
The two vessels will be traded in the product tanker spot market for now and may be locked into charters when the tanker market improves.
FSL Trust’s Q2 lease revenue rose 14.8 per cent year on year to US$28.5 million. But this includes a one-off US$6 million cash payment the trust received from the re-delivery of the two vessels. Stripping this out, revenue fell 9.3 per cent to US$22.5 million due to the premature termination of the charter agreements for the vessels.
FSL Trust’s units closed unchanged at 42 cents yesterday.