FSL – Westcomb
Proposes distribution reinvestment scheme
• First Ship Lease Trust (“FSL Trust”) proposed the adoption of the First Ship Lease Trust Distribution Reinvestment Scheme (the “Scheme”).
• The proposed Scheme, if adopted, will enable Unitholders to elect to receive their distributions in the form of new units (“New Units”) in lieu of cash. Unitholders will have the flexibility to elect for part of their distribution to be received in the form of New Units with the remaining distribution to be paid in cash. Unitholders who do not choose to participate in the Scheme will continue to receive their distribution in cash.
• The Scheme enables Unitholders to acquire additional units in FSL Trust and thus increase their unitholding incrementally without incurring brokerage or other transaction costs. With the issue of New Units in lieu of cash, the capital base of FSL Trust will be enlarged incrementally and this is expected to enhance the trading liquidity of the units in the long run.
• The cash retained, which would otherwise have been paid as distribution, could be deployed to fund the continuing growth and expansion of FSL Trust.
Rickmers – OCBC
Has derated significantly; maintain BUY
Second MOL acquisition completed. Rickmers Maritime (RMT) recently accepted delivery of its 12th vessel, MOL Dedication, the second of 13 additional vessels RMT is contracted to buy over 2008-2010. Newbuild MOL Dedication will be time chartered to Japan’s Mitsui O.S.K. Lines Ltd (MOL) for a 10-year period. It is the second of five 4250-TEU containerships costing US$72m each that will be chartered to MOL. The first, MOL Dominance, was delivered in June 2008. The remaining three MOL vessels are also expected over 2H08. Contributions from the five MOL vessels should increase RMT’s 2H revenue, which makes up 56.1% of our full-year estimate.
Ambitious growth plans. RMT’s debt-to-equity ratio had increased to 0.91x at 30th June from 0.77x as at the end of 1Q. Including MOL Dedication, RMT will spend US$288m on the Mitsui vessels coming in over 2H. Its heavy acquisition program continues beyond 2008: it will spend US$276m on the four vessels slated for FY09; and US$711.6m on the four megacontainerships to be delivered in FY10. On 2Q equity levels of about US$417m, this implies a debt-to-equity of roughly 1.6x by end FY08, 2.2x by end FY09, and 3.9x by end FY10.
Equity issue inevitable (but not immediately). RMT’s aggressive growth plans are supported by its ability to run time charters with long term visibility. It plans to fund the contracted acquisitions using a combination of retained cash, debt and equity. RMT has already arranged for new credit facilities to fund its FY08 and FY09 purchases. RMT has US$608.3m in unused debt facilities (before paying for MOL Dedication), which gives it some breathing space in the nearer term. However, an equity issue will be inevitable over FY09-FY10 in order to accommodate RMT’s debt repayment schedule and the US$771.6m vessels due in FY10.
Has derated significantly. In line with turbulent markets and the Singapore-listed shipping trust sector, RMT saw volatile movements in its share price last week. It fell to a low of 88 S cents on Thursday before recovering to 93.5 S cents by Friday’s close. A lot of the noise came from the broader market but a major RMT-specific concern is that institutional investors make up a significant portion of its unitholder base. Such overhang is a concern across the high-yield space including other shipping trusts, business trusts and S-REITs. RMT is our top pick for the shipping trust sector and we think today’s 13.6% yield (FY08F) looks attractive. Maintain BUY with S$1.22 fair value.
CitySpring – OCBC
Nascent infrastructure play
Singapore-listed infrastructure play. CitySpring Infrastructure Trust (CitySpring) is a Singapore-listed business trust focused on infrastructure assets. It owns City Gas, Singapore’s only producer and retailer of piped town gas. It also owns a 70% stake in SingSpring, Singapore’s only supplier of desalinated water to the Public Utilities Board. After its IPO, CitySpring went on to acquire Basslink, an electricity interconnector in Australia. These assets essentially operate as regulated monopolies with regulated tariffs (City Gas) or under long-term contracts and concessions (SingSpring and Basslink).
Backed by Temasek. CitySpring is sponsored by Temasek Holdings (Temasek), a private investment vehicle wholly owned by the Singapore government. Temasek owns CitySpring’s trustee-manager and is also the trust’s single largest unitholder with a 27.8% stake. Investing and owning infrastructure assets is not an easy task, with risks on political, social, legal, and technical levels. Temasek has a strong balance sheet, is highly experienced in infrastructure investments, and has a strong business network internationally. This is a key differentiator in our opinion.
Stable, non-cyclical cash flows. CitySpring’s assets feature some unique characteristics including: (1) a monopolistic market position or strategic consideration; (2) stable and predictable cash flows that are fairly non-cyclical; (3) CPI-linked revenue escalations that act as a hedge against inflation or regulator-controlled returns; (4) fairly inelastic demand or availability-based revenues; and (5) a long investment horizon. We find the stability of CitySpring’s cash flows attractive, especially in current market conditions. The non-cyclical nature of CitySpring’s cash flows is also a major differentiator against other yield plays like shipping trusts and REITs who may be heading into industry downturns.
Deferred cash call blocking further growth. CitySpring originally intended to fund last year’s S$1.5bn Basslink acquisition on a 3x debt-to-equity basis. CitySpring then decided to wait out difficult market conditions, and has postponed the equity issue indefinitely. Basslink is currently 100% debt financed, which we do not find sustainable. In our view, CitySpring’s current portfolio lacks critical mass and we would like to see it significantly grow its portfolio through further acquisitions. This makes the equity cash call necessary, not just inevitable. This affects our valuation of the trust and we initiate coverage on CitySpring with a HOLD recommendation. Our fair value estimate is 80 S cents, or 15.5x FY09F EV/EBITDA (adjusted for SingSpring’s lease receivable repayment). CitySpring is paying out 7 S cents a year, which translates to a 10% yield.
AIG – BT
AIG has direct stake in three listings here
Its largest stake is in Macquarie Prime Reit, followed by First Lease & Jiutian
Ailing insurer American International Group (AIG) has direct and significant stakes in Singapore listings Macquarie Prime real estate investment trust (Reit), First Ship Lease Trust and Jiutian Chemical Group, Bloomberg data showed.
About 10 other firms listed here are exposed to investment funds owned by the world’s largest insurer, which was thrown a life-line on Wednesday in the form of a US$85 billion government loan.
AIG directly owns 10.9 per cent of Macquarie Prime Reit, which works out to $75.3 million based on yesterday’s closing price of 72 cents. It also holds 0.9 per cent stake of the Reit through two AIG-managed international funds, known as the Singapore bond and Acorns of Asia balanced funds.
First Ship Lease Trust has about 8 per cent, or 40.4 million shares, held directly by AIG. This is worth $34.4 million based on the last closing price of 85 cents. AIG also holds an additional 1.6 per cent of First Ship through the same two international funds.
China-based Jiutian Chemical Group has nearly 4 per cent in the direct hands of AIG. The 64.6 million shares is equivalent to $4.84 million, according to yesterday’s closing price of 7.5 cents. Two AIG-managed funds – AIG South-east Asia small companies fund and Southeast Asia small and mid-cap fund – owns another 0.3 per cent.
AIG has not declared changes in shareholding to the Singapore Exchange.
First Ship Lease Trust called AIG late afternoon on Wednesday regarding the company’s shareholding and was told that AIG would be holding on to its stake for now, chief financial office Cheong Chee Tham told BT.
‘We have received no indication from AIG on selling,’ he said.
Macquarie Pacific Star spokesperson said: ‘Macquarie Pacific Star, the manager of MP Reit, maintains regular communications with the Reit’s substantial unitholders,’ adding that AIG has held its stake in the Reit since its listing in September 2005.
‘However, we are not in a position to speak on behalf of them. AIG, as a substantial unitholder, is required to inform the market of any change in their interest in MP Reit.’
AIG-managed funds are also invested in other stocks including S-chips Ferrochina, Fibrechem Technologies and Synear Food Holdings, property firms Ho Bee Investment and Hotel Properties, marine players STX Pan Ocean and Swiber Holdings, as well as Raffles Education Corporation and Raffles Medical Group. All stakes are below 0.5 per cent.
Fibrechem and Raffles Medical have not contacted AIG on their shareholdings, spokesmen said. Ferrochina and Raffles Education declined comment.
As the US Treasury rushes to save AIG, Wall Street has turned its attention to Morgan Stanley, after the Financial Times reported that the US investment bank was in preliminary merger talks with parties including Wachovia, the fourth largest US bank based on assets, and China Investment Corporation. This follows the declared bankruptcy of Lehman Brothers in the same week.
Morgan Stanley directly owns 12 per cent of United Industrial Corporation (UIC), a property unit of Singapore’s second largest bank United Overseas Bank, Bloomberg data showed. It also holds another 1.36 per cent in UIC through its asset management and investment divisions.
Some 10 per cent of logistics firm CWT is also held by Morgan Stanley. It holds 9.79 per cent directly and 0.25 per cent through its asset management arm. ‘Everything remains well and unchanged now,’ CWT chief financial officer Lynda Goh told BT.
Lehman has no significant direct investment in stocks here, according to Bloomberg.
CMT – DBS
Retail unit management changes
Story: In a round of management changes at both CMT and CRCT, Mr Pua Seck Guan has resigned as CEO of CapitaMall Trust Management Ltd (CMTML), citing pursuit of personal interests as the reason. The leadership of CMTML will be transferred to Mr Lim Beng Chee, who will in turn relinquish his position as CEO of CapitaRetail China Trust Management Ltd (CRCTML) to Mr Wee Hui Kan, currently the Deputy CEO of CRCTML. Mr Lim who is currently the Deputy CEO of Capitaland Retail (CRTL), will also assume the role of CEO of CRTL from 1 Nov 2008.
Point: We expect the change in management to be effected smoothly given that Mr Lim has been with Capitaland since 1999 and was instrumental, together with Mr Pua, as key drivers of Capitaland’s growth as a leading retail mall manager and owner in Asia. In addition, Mr Lim was also involved in the formation and growth of the two retail reits, CMT and CRCT. We believe CMT would continue to enjoy its pole position as the largest retail S-reit with an ability to execute its asset enhancement activities.
Relevance: Share price of CMT had held up well in the recent market rout. Current valuation of 5.4-5.5% FY08 and FY09 yield appears relatively expensive in view of the hefty 200-300bps premium over its comparable peers’ yields of 7.4-8.4%. We downgrade the stock to Hold largely on valuation grounds, given the small 6% upside to our target price of $2.85. The significant trading yield spread premium over other retail S-reits and current volatile market conditions may likely cap the short-term performance of the stock. Catalyst for share price performance of the stock could likely depend on newsflow on potential acquisition of new properties in the pipeline.