MI-REIT – BT
By EMILYN YAP
SINGAPORE – Three property and infrastructure funds issued statements on Wednesday in a bid to reassure investors of their financial positions.
The Macquarie International Infrastructure Fund Limited (MIIF) said that its businesses are performing strongly in line with management’s expectations.
The fund revealed that it has no bilateral dealings with known troubled financial institutions, and the earliest maturity date for borrowings held by underlying businesses stands at 2011.
Facing a possible rating downgrade by Moody’s, MacarthurCook Industrial Reit (MI-Reit) said that its income is secured by a long lease expiry profile, head lease arrangements and quality and diversified tenants.
MI-Reit added that it is in negotiations to refinance debt maturing in April 2009. Negotiations should be finalised in January next year.
The MacarthurCook Property Securities Fund also highlighted its commitment to further reduce debt and prudently manage its underlying portfolios.
FSL – BT
FSL Trust sees steady revenue with long leases
CHARTER lease provider First Ship Lease (FSL) Trust said yesterday that investors have little cause for worry as its charter leases are long-term, which should result in steady revenue. But it plans to scale back acquisitions as the shipping industry navigates choppy waters.
‘While shipping cycles do affect our lessors, our strength is that our charters are long-term and fixed,’ said CFO Cheong Chee Tham. ‘We give investors exposure to the maritime industry with reduced risk.’ Lessors with strong credit ratings will be able to ride through the current storm, he said.
FSL Trust has a portfolio of 23 vessels that are leased out on for terms of at least seven years. The earliest expiry for one of its contracts is 2014. FSL also highlighted that as at Sept 30, it had no loan maturity for three years.
The trust is also unlikely to make any acquisitions between now and mid-2009, and plans to focus on sustaining its distribution per unit (DPU). DPU for the third quarter ended Sept 30 was 3.05 US cents. DPU guidance for Q4 is 3.08 US cents, revised down from 3.11 US cents earlier this month. This is because FSL Trust’s lending banks invoked a ‘market disruption clause’ in loan terms, which has led to higher interest charges.
FSL Trust is ‘optimistic’ its banks will not invoke this clause again when interest rates are reset around end-December and early January, since the gap between interbank funding and the London Interbank Offer Rate (Libor) has narrowed. DPU guidance for Q1 2009 is now 3.17 US cents. Unitholders will be paid the Q3 2008 DPU on Nov 28. Q3 revenue grew 84.8 per cent to US$23.69 million, while net distributable income was 42.2 per cent higher at US$15.8 million, of which US$551,000 was payable as an incentive fee to the trustee-manager.
FSL Trust’s unit price closed five cents higher at 48 Singapore cents yesterday.
CMT – BT
CMT puts works at three malls on hold
Trust’s fundamentals strong, rents not likely to bottom out
CAPITAMALL Trust (CMT) yesterday said that it will put upgrading plans for some of its properties on hold because of high construction costs.
Singapore’s biggest property trust also said that its third-quarter distributable income rose 14.2 per cent to $60.8 million, from $53.2 million a year earlier, as contributions kicked in from new acquisition The Atrium. Q3 distribution per unit (DPU) rose to 3.64 cents a share, from 3.4 cents a year earlier. Net property income rose 13.1 per cent to $86.9 million, from $76.8 million in Q3 2007.
The earnings were in line with expectations, analysts said. The news pushed CMT shares to their highest level in more than two weeks. The stock rose as much as 16 cents or 7.8 per cent to $2.21 before ending the day at $2.11.
Looking ahead, CMT will be cautious, will review new commitments carefully and will not sacrifice liquidity for new projects, said Lim Beng Chee, chief executive-designate of the trust’s manager. For now, enhancement programmes that have not started at three malls – Funan DigitaLife Mall, Tampines Mall and Jurong Entertainment Centre (JEC) – have been put off. Works at JEC were projected to cost about $170 million.
The trust’s fundamentals are strong as rents are not expected to bottom out in the next few quarters, said Pua Seck Guan, CMT’s outgoing chief executive. So far this year, CMT has renewed 289 leases – which make up 15.4 per cent of total net lettable area – at a 9.3 per cent increase to preceding rental rates. There is also a $12.2 million projected increase in net property income from ongoing asset enhancement works.
Analysts agreed with Mr Pua. Singapore’s retail sector remains resilient, as evidenced by CMT’s latest results, Macquarie Research Equities analysts said in a note yesterday. ‘CMT remains one of our top Singapore Reit (real estate investment trust) picks, with growth from active leasing, asset enhancements and acquisitions,’ it said. Citigroup also issued a ‘buy’ call on CMT, citing its steady income stream.
CMT has already secured refinancing for $187.5 million and $80 million of loans due in December 2008 and May 2009 respectively and is in the midst of negotiating refinancing for $673.7 million due in August 2009. Both the trust and analysts are confident funding will be secured.
‘CMT exists within the enlarged CapitaLand group, and the group as a whole is well supported by local and foreign banks,’ said UOB Kay Hian analyst Jonathan Koh. Earlier this month, CapitaLand said that with its various listed entities, it has raised more than $5 billion of debt year-to-date. In May this year, the trust raised its target asset size to $9 billion by 2010, from an earlier forecast of $8 billion. CMT agreed in May to buy The Atrium along the Orchard Road shopping belt for $839.8 million, boosting its assets to $7.2 billion at June 30.
Yesterday also marked Mr Pua’s last results briefing at CMT’s helm. He quit in September to pursue personal interests. His resignation is a ‘big loss’ and could threaten the group’s ability to grow in the longer term by acquiring under-utilised assets, said Citigroup analyst Wendy Koh. ‘However, his departure is unlikely to affect the rental income stream from existing portfolio and major asset enhancement pipeline for existing properties,’ she added.
Mr Lim acknowledged that Mr Pua has left ‘big shoes’ to fill, but is confident that the management team can fill them.
KREIT – DBS
Pricing in cloudy sector outlook
Story: K-REIT reported a 34% y-o-y jump in 3Q08 revenue to S$13.9m, led by higher rental rates and occupancies. However, NPI grew by a lower 27% to S$9.5m due to an increase in expense ratio to 31.2% arising from higher property taxes. Distributable income grew 35% to S$15.2m, translating into 2.34cts DPU.
Point: The better performance was the result of organic growth from positive rental reversion, as well as inclusion of contributions from ORQ. Its portfolio occupancy remained strong at 99.4%, while office rents were stable in the quarter. An estimated 1.5% of portfolio NLA was renewed during the quarter, and the lag effect between new and previous rates boosted average rents by 0.8% qo-q to S$7.43psf/mth. Looking ahead, anticipated slower economic growth and the worsening global financial crisis will dampen demand for office space and rental growth.
Coupled with an increasing supply of new office space coming onstream over the next two years, rental rates and capital values are likely to soften. This will likely moderate DPU growth going forward. Meanwhile, refinancing concerns have abated after K-REIT managed to secure a revolving loan facility that extended its loan maturity profile to 1H2011.
Relevance: Like other office REITs, K-REIT’s share price tumbled amid concerns over the office sector. Current valuations are inexpensive at 10.6% FY09F DPU yield and implied asset value of S$870psf vs its Dec 07 valuation of S$1,707psf. However, it lacks a near-term catalyst given anticipated negative newsflow on the office sector. Our RNAV of $1.16 has factored in a 35% decline in office rents over this cycle. Maintain Hold recommendation with a price target of S$0.93, based on 20% discount to RNAV.
Shipping Trusts – DBS
Shipping woes spreading to trusts
Shipping industry concerns bearing down on share prices. Concerns on all three shipping trusts – First Ship Lease, Pacific Shipping Trust and Rickmers Maritime – have been on : (a) stability of revenues, cashflows and DPUs; (b) rising counterparty risks; (c) availability of credit lines; and (d) fast declining asset values.
Revenue sustainability. Leases are locked in. FSLT’s has an average lease term of 9 years with the earliest lease coming up for renewal in 2014. For PST, the average lease term is 7 years, with the earliest coming up for renewal in 2013. In the case of RMT, the average lease term is 7 years, with the earliest lease expiring in 2012.
Counterparty risk is low for now. RMT currently operates twelve container vessels leased out to blue-chip charterers – Italia Maritima, CMA CGM, AP Moeller Maersk, Hanjin Shipping, Mitsui OSK. For PST, of the 11 vessels it owns and operates, 10 are leased back to Sponsor PIL while 1 is to CSAV. FSLT has 8 charterers. So far, we gather from management of all three shipping trusts that all payments have been prompt. However, we are aware that there is room for renegotiation (down) of leases for a short period should any of the lessees face headwinds from slowing trade. We also understand any loss in revenue will have to be made good for when the lessee is able to and/or when the cycle turns.
Financing/Credit lines intact for PST and FSLT. For FLST, the earliest debt facility comes up for refinancing in Apr 2012. However, it will need to amortise US$5m per quarter from Sep 2010 to Apr 2012. In PST’s case all loans are on an amortising basis. For RMT, it will need to repay US$130m, a short term debt facility in 1Q10. Of the 3, both PST and FSLT have noncommitted capex. RMT has an aggressive capex program of US$1.3bn to acquire 13 (two have been delivered). Out of this, US$712m of funding requirements for vessel deliveries in FY10 have yet to be finalized.
Best pick in this environment – FSLT. Our preferred pick in this sector is FSLT. No uncommitted capex program with no refinancing of any loan until 2012. Maintain Buy for FSLT with a TP of S$0.97. We downgrade PST (Hold, TP S$0.29) and RMT (Hold, TP S$0.63).