Rickmers – BT
Rickmers cuts Q2 DPU to US0.6cents to conserve cash
RICKMERS Maritime Trust (RMT), the last of the shipping trusts to report second-quarter results, has reported the biggest cut of all in distribution per unit (DPU) – a 73 per cent plunge to just 0.6 of a US cent. First Ship Lease Trust (FSLT) cut DPU to 2.45 US cents from 2.8 US cents previously while at Pacific Shipping Trust (PST), the drop was to 0.99 US cent from 1.09 US cents.
Both also held out the possibility of further cuts from the third quarter, FSLT to 1.5 US cents and PST to 70 per cent of distributable income from 90 per cent currently. RMT declined to give a DPU guidance for the remaining quarters. All three trusts cited cash conservation amid uncertain times as reasons to cut distribution. RMT, however, did continue to chalk up increases in charter revenue, operating cash flows as well as income available for distribution.
Q2 revenue rose 59 per cent to US$37.6 million from US$23.7 million for Q208 due to expansion in operating fleet to 16 vessels compared with 11 a year ago. For the first half, charter revenue rose by just over half to US$70.1 million compared to US$46 million for H108. Operating cash flow also rose 56 per cent to US$28.7 million for the second quarter and 58 per cent to US$55.9 million for the first half.
Fleet utilisation remained high at 99.8 per cent with only 5.5 off-hire days out of a total of 2,718 vessel ownership days.
Q2 income available for distribution was 42 per cent higher at US$19.6 million. However, net profit fell 43 per cent to US$5.2 million due to provision of US$7.5 million for asset impairment, which RMT provided for after taking into account the potential early re-delivery of the Maersk Djibouti in February and subsequent lower charter rate in 2010 given the current weak container shipping market.
Looking ahead, negotiating a waiver of value-to-loan (VTL) covenants and the refinancing of RMT’s US$130 million top-up loan facility maturing in April 2010 remain challenges, management warned. RMT also has the spectre of unsecured funding for its four 13,100 TEU ships, due for delivery in the latter part of 2010, hanging over it. Management is currently in discussions with various stakeholders to resolve the matter, RMT said, adding that a financial adviser and investment bankers have been appointed.
CitySpring – OCBC
Finally calls for cash
Rights issue to raise S$235.2m gross. CitySpring Infrastructure Trust (CitySpring) has announced a fully-underwritten renounceable one-for-one rights issue to raise gross proceeds of approximately S$235.2m. The rights issue price is S$0.48 per rights unit, or a 38.5% discount to yesterday’s close of S$0.78. The theoretical ex-rights price (TERP) is S$0.63 per unit. Sponsor Temasek Holdings will take up its full pro-rata entitlement of 27.77% of the rights units, and will sub-underwrite another 4.24% of rights units.
Repaying debt at the trust level. The estimated net proceeds of S$227.5m will be used to repay part of the S$370m DBS term loan at the trust level. The manager disclosed that it intends to replace that facility with a revolving credit facility (RCF) for the same S$370m amount (with only approximately S$142.5m drawn). CitySpring has received in-principle approval from DBS for the RCF but terms and costs are still being negotiated. The manager estimates net interest savings of S$4.7m per year, which takes base management fees and RCF running costs into account (but not any upfront fee). Using this estimate, it calculates pro forma 1Q10 DPU to be 1 S cent on the enlarged units base versus 1.75 S cents current.
Call gives new flexibility. The manager said the rights issue and the committed RCF gives CitySpring flexibility both in terms of funding power and timing. This flexibility could potentially be deployed towards funding acquisitions or enhancement opportunities at existing assets. The latter opportunities could include investments in the new telecoms business at Basslink or partially funding the gas network conversion program at City Gas (which could start as soon as 2HCY10).
Valuation. The cash call was no surprise, and we view it positively as it clears part of the overhang of the 100% debt-financed Basslink acquisition. The trust can now shift out of ‘neutral gear’ and seriously consider growing its asset base over the next 12 to 18 months. No post-rights DPU guidance is given. We believe it will be determined by the exact RCF terms and the timing/extent of any enhancement plans. If payout is unchanged, we believe an annual post-rights DPU of 3.9 to 4 S cents is a fair benchmark (a yield of 6.2-6.3% on the TERP). While this per-unit number is lower, the rights issue has created scope for DPU growth that was previously absent (in our opinion). Maintain BUY with S$0.84 fair value estimate, with earnings estimates unchanged for now. Ex-rights fair value would be S$0.68.
HWT – BT
Hyflux Water Trust posts $6.9m distributable cash
H1 figure is up 53% from before, translating to a DPU of 2.56cents
HYFLUX Water Trust yesterday reported distributable cash of $6.9 million for the first half of this year, up 53 per cent from first-half 2008.
This translates to distribution per unit (DPU) of 2.56 cents, except for units held by the trust’s sponsor, water treatment company Hyflux. Distribution per sponsor unit was partially waived to 1.77 cents to meet the trust’s projected interim DPU of 2.56 cents.
This is 18 per cent above the 2.17 cents distributed for H1 2008 and represents a yield of 3.9 per cent based on yesterday’s closing unit price of 65 cents. The trust distributes cash to its unit-holders every six months.
For the six months ended June 30, the trust’s total revenue fell 33 per cent to $20.7 million, from $31 million in H1 2008. Net operating income rose 72 per cent to $5.7 million for the half-year, yielding an after-tax profit of $5.1 million, 56 per cent up from a year back.
Q2 revenue fell 60 per cent year-on-year to $6.6 million, and the trust posted an after-tax loss of $1.2 million, versus a net profit of $2.2 million the year before.
The drop in revenue was due mainly to a 95 per cent drop in construction revenue to $0.6 million, as the construction of several plants was completed. Operating and maintenance and finance income grew 80 per cent to $6.1 million in Q2 2009 ended June 30.
Driven by stronger operating revenue, net operating income rose 27 per cent year-on-year to $2.7 million. ‘Unrealised foreign exchange losses from the revaluation of inter-company balances’ led to the $1.2 million net loss.
The trust’s cash and cash equivalents rose 20 per cent from end-March to $38.6 million at June 30, as operating activity generated more cash than was used to finance activities.
Gary Kee, chief executive of the trustee-manager, said: ‘Considering the very challenging economic environment, we are very pleased that Hyflux Water Trust has stayed resilient and met its distribution forecast for this half-year.’
The global water sector’s overall medium to long-term outlook remains strong, especially in China, the trustee-manager said.
Hyflux Water Trust, whose portfolio consists of 18 water plants operating under long-term concession agreements, said volume throughput rose marginally in Q2 from Q1 and is expected to remain resilient in H2.
It believes that it is on track to deliver projected DPU of 2.86 cents for the second half, which will mean a full-year DPU of 5.42 cents.
A-REIT – UOBKH
Upside Limited After Factoring In Dilution
Embark on equity fundraising. Ascendas REIT (A-REIT) has launched a private placement of 185m new units at S$1.63 to S$1.70 each, or 3.8% to 7.8% discount to the volume-weighted average price on 7 Aug 09. This is the second private placement this year. The equity fundraising exercise is expected to raise gross proceeds of S$301.6m, which will be used in the following manner:
• S$175.4m will be used to fund the development of a hi-tech built-to-suit facility for Singapore Telecommunications (SingTel),
• S$120.6m will be used to fund potential acquisitions of income-producing properties and built-to-suit development opportunities in the pipeline, and
• The balance will be used for general corporate and working capital purposes.
The book building process started yesterday and is expected to be completed by 12 Aug 09. A-REIT’s gearing will be reduced from 35.7% to 29.3% after completion of the private placement.
Downgrade to HOLD. We have cut DPU forecast for FY11 by 6.7% to 11.2 cents due to dilution from the private placement. We have also factored in contributions from the built-to-suit facility for SingTel starting 1QFY11. Share price has gained 29.4% ytd and upside is limited after factoring in dilution from the private placement. Our fair price of S$1.81 is based on the Dividend Discount Model (required rate of return: 7.7%; growth: 2.5%).
MI-REIT – Phillip
MacarthurCook Industrial REIT (MIREIT) reported gross revenue for 1QFY10 of $11.0 million (-11.8% y-o-y, -16.1% q-o-q)), net property income was $9.3 million(+3.2% y-o-y, flat q-o-q). Distributable income was $4.0 million(-39.2% y-o-y, -19.5% q-o-q). DPU for the quarter was 1.51 cents (35.7% y-o-y, -19.2 qo-q).
Gross revenue was lower in 1Q10 mainly because of a refund of service charges to tenants. Service charge is a reimbursable item by tenant and does not affect the actual revenue. Underlying rental revenue from tenants remains stable with portfolio occupancy rate of 98.64%. Net property income stays fairly constant, but distributable income has fallen since 4Q09 because of a claim for industrial building allowance and also higher interest cost in 1Q10. In FY09, MIREIT had maintained a quarterly payout of 2.35 cents for the first three quarters while any retained income was distributed in 4Q09. For 1Q10, it is paying out 100% of the distributable income. However distributable margin has fallen from 0.5 in 1Q09 to 0.36 in 1Q10 due to the reasons mentioned above.
The REIT manager wrote down the asset value of its Japan property by 9.5% and subsequently portfolio value decreased from $530.3 million at 31st March 2009 to $526.4 million at 30 June 2009. The current gearing is 41.8% with total debt of $225 million that is due in Dec 2009.
We keep our revenue forecasts as we believe the portfolio is able to maintain its occupancy. However we factor in the decreased in distributable income arising from the claim for industrial building allowance which results in a downward revision of our FY10F DPU forecast by 30% to 5.82 cents. We raised the weighted average cost of capital (WACC) in our DCF model from 9.8% to 10.6%. Our fair value is thus lowered from $0.39 to $0.26. The impending refinancing need still poses a big certainty to us. We downgrade our recommendation from Hold to Sell.