REITs – BT
Moody’s to review ratings for Singapore Reits
MOODY’S Investor Service has said that it will review ratings for Singapore’s real estate investment trusts (Reits) after downgrading the second-biggest Reit traded on the nation’s exchange.
‘Those Singapore Reits with refinancing risks over the next 12 months and those with weak credit metrics that are likely to be under pressure under the prevailing weakened operating environment will be reviewed closely,’ Kathleen Lee, a credit analyst at Moody’s, said in a reply to a query.
The worst global recession since the Great Depression has frozen credit, making it difficult for property owners to refinance maturing debt.
Moody’s had on Jan 30 cut its rating for Ascendas Real Estate Investment Trust, an industrial landlord, to ‘Baa1’ from ‘A3’. The downgrade ‘reflects the trust’s ongoing refinancing risk, given that it hasn’t fully addressed its reliance on uncommitted revolving credit facilities to support its long-term assets’, Moody’s said in a statement.
Ascendas Reit slumped 5.5 per cent to $1.38 yesterday.
Ascendas Reit raised $407 million from a share sale last month and is in talks with an unidentified bank for a new $250 million, three-year committed credit facility and is seeking the extension of an existing $300 million loan that will mature in March 2010, according to a statement sent by Ascendas Funds Management Ltd to the Singapore Exchange yesterday.
Ascendas Funds ‘has been taking, and will continue to take, a proactive approach towards the capital management of Ascendas Reit’, the statement said.
Other Reits also fell. CapitaMall Trust, the city’s biggest, fell 5.6 per cent to $1.51.
Frasers Centrepoint Trust, the shopping mall operator partly owned by the city’s biggest beverage company, slipped 5.8 per cent to 65 cents.
Ascott Residence Trust, partly owned by the city’s biggest developer, slumped 8.9 per cent to 51 cents. — Bloomberg
Saizen – BT
Moody’s reviews Saizen for possible downgrade
Reit unlikely to achieve operating scale in its existing rating, says agency
MOODY’S Investors Service has put Saizen Reit’s Baa3 corporate family rating on review for possible downgrade.
Kaven Tsang, a Moody’s assistant vice-president/ analyst, said: ‘The review is prompted by Moody’s expectation that it is unlikely that Saizen can achieve the operating scale that was built into its existing rating when it was first assigned, as the credit and financing market remains tight and could deteriorate further in view of the deleveraging progress evident in the banking system . . . Meanwhile, Saizen stays exposed to a high level of refinancing risk in the fourth quarter of 2009.’
Saizen Reit, which was listed on the Singapore Exchange in November 2007, invests in Japanese regional residential properties.
In a proposed rights issue announcement dated Dec 31, 2008, the trust’s manager said that in order to conserve cash, it may as a temporary measure consider significantly reducing or suspending dividend payouts in cash until refinancing plans become clearer and financial conditions are more satisfactory.
On Jan 13, the manager further proposed a scrip-only dividend scheme, subject to unitholders’ approval, to ‘provide the flexibility for Saizen Reit to pay out part or whole of a dividend by way of new scrip dividend units (in the event that a dividend is announced) and allows cash to be conserved for loan repayments’.
Saizen Reit’s unit price has fallen from 82.5 cents on Feb 26 last year to its last traded price yesterday of 10.5 cents.
In Moody’s release yesterday, Mr Tsang, who is also lead analyst for Saizen Reit at the ratings agency, observed that internal reserves – including an estimated 5.7 billion yen (S$96.7 million) in unrestricted cash as at December 2008 – and about 2.5 billion yen in expected proceeds from a recently announced rights issue, are more than enough to cover Saizen Reit’s maturing debt in the first half of 2009.
‘However, it still has to secure additional financing to meet a total of 13.4 billion yen in maturing CMBS (convertible mortgage- backed securities) due in the fourth quarter.’
The proposed rights issue is subject to approval by regulatory bodies and independent unitholders.
‘The tightened state of the global credit environment and the distressed state of the banking sector add material uncertainty to Saizen’s refinancing process, while it is also exposed to the weakening operating environment as Japan moves into recession,’ Mr Tsang said.
Moody’s last rating action for Saizen Reit was on Nov 28 when the outlook was revised to negative.
CDLHTrust – DBS
Cutting Dividend Payout
CDL HT reported their FY08 results in line with expectations. DPU of 10.6cts for the year meant a DPU yield of 16% for unitholders. However, the trust is reducing their payout ratio to 90% from 2H08 onwards, in light of an increasing challenging operating environment. We switch our methodology to DDM to take into account the reduced payout. TP is adjusted to S$0.70. Maintain HOLD. CDL HT is trading at c..11% FY09-10F DPU yields.
Results in line. Gross revenues and NPI, which came in at S$115m and 103m (+26% and +20%) respectively, were in line with our estimates. This was on the back of a 20% yoy growth in RevPAR to S$208, which mainly reflected the stronger first 3Qtrs results offsetting a slightly weak 4Q. Distributable income of S$91.9m was also in line. DPU of 10.6 Scts for the year was slightly below our estimates, due to a change in payout ratio to 90% from 2H08 onwards. NAV was adjusted downwards to S$1.42 due to a 9.1% write-down in asset values. Gearing remains low at 18%. The trust is looking to finalize the refinancing of ST loans in the near future.
Moving to a lower payout ratio. Mgmt guided that the decision to reduce payout was driven by financial prudence and use for working capital and potential capex in the light of a deteriorating local tourism outlook. Though we agree that this will enable better financial leverage for the trust moving forward, it comes at a high price as the trust will be liable for tax on the retained amount.
Switching to DDM valuation. We switch our valuation methodology to DDM to take into account the impact of a reduced payout moving forward. Our target price, as a result, is reduced to S$0.70 (11% cost of equity, 1% terminal growth). Maintain HOLD.
StarHill Gbl – DBS
Not Shining yet
Starhill Global Reit (Starhill) reported FY08 results in line with expectations. Unitholders will receive DPU of 7.17 cts , translating to a 14% yield. Looking ahead, while we view that the trust should be able to deliver relatively stable DPU, headwinds from weaker consumer discretionary and tourism spending could limit re-rating opportunities in the near term. As such, maintain HOLD, TP$0.60
Results in line. Starhill Global Reit (Starhill)’s FY08 distributional income of S$69.4m, DPU of 7.17 Scts were in line with expectations. Gross revenues and gross profits increased 24% and 25% to S$127.0m and S$95.9m respectively, driven by (i) higher rentals achieved through FY08, (ii) 19.75% Toshin kicker from Jun’08.
NAV of S$1.44. The trust recorded a revaluation loss of S$160.9m on its properties, resulting in a NAV of S$1.44, compared with S$1.61 a year ago. Gearing inches up slightly to 31%, which remains relatively low amongst the SREIT space.
FY09-10 DPU yield of c.14%. Moving ahead, we estimate DPU yields to remain relatively stable, as the reit enjoys the full year contribution from the positive Toshin rent review which offsets our estimated 5% drop in portfolio occupancies and a 20%-10% fall in asking rents its office space and retail space respectively.
HOLD, TP S$0.60. Re-rating catalyst appears lacking in the near term, due to anticipated worsening newsflow of a further tightening of consumer and tourist spending. Our DCF-based TP is adjusted slightly upwards to S$0.60 as we roll forward our numbers.