AscottREIT – BT
Ascott Trust Q1 payout per unit up 47%
ASCOTT Residence Trust (ART) achieved a unitholders’ distribution of $14.17 million for the first quarter ended March 31 – a 76 per cent rise from a year earlier. And distribution per unit (DPU) rose 47 per cent to 2.33 cents.
The trust said its serviced residences continued to benefit from strong demand for accommodation from business travellers in Asia. The improved operating performance of its properties and contributions from new acquisitions also boosted its performance.
Serviced residences posted 15 per cent growth in revenue per available unit (RevPAU) overall, led by a strong RevPAU increase of 29 per cent in Singapore and higher RevPAU in China, Indonesia, the Philippines and Vietnam.
In addition, rental housing properties in Tokyo have performed well since they were acquired in December last year, achieving average occupancy of about 90 per cent, according to ART.
‘We will continue to focus on maximising asset yields to drive organic growth and making yield-accretive acquisitions to deliver stable and growing returns to unitholders,’ said Lim Jit Poh, chairman of Ascott Residence Trust Management Ltd.
Added Chong Kee Hiong, ARTML’s chief executive officer: ‘Our strategy of maintaining a balance of properties in stable as well as emerging markets in the Pan-Asian region will continue to provide a high degree of income stability for the portfolio.’
Upon completion of its latest acquisition in Perth, expected in the current Q2, the trust’s portfolio will expand to $1.52 billion, comprising 37 properties with 3,550 units in 11 cities across seven countries.
PST – UOBKH
Lower DPU in 1Q08, but should improve with new ships
Pacific Shipping Trust (PST) reported a net profit of US$0.47m for 1Q08. Excluding fair value losses on interest rate swaps of US$3.6m, net profit would have been US$4.1m. This appears to be ahead of our 2008 net profit of US$14.0m on what appears to be lower-than-expected depreciation of US$2.5m (1Q07: US$3.2m). Net profit for the remaining quarters of 2008 should register higher earnings due to the impact of four new containerships. Our earnings forecasts do not take into account gains/losses on interest rate swap contracts. These gains/losses are non-cash items and fluctuate from quarter to quarter depending on interest rate movements. Such gains/losses have no impact on PST’s distributable profit and cash.
However, PST has declared a DPU of 0.97 US cts, 6.7% lower than 1Q07’s 1.04 US cts. Income available for distribution was US$3.3m (1Q07: US$3.4m) after retaining US$0.5m for working capital. PST has lowered its payout to 90% from 100% because it believes it is prudent to set aside cash to provide for future working capital and to support long-term strategic development of the trust. We are maintaining our earnings and DPU forecasts.
The four new ships to be delivered in 2008 will expand PST’s portfolio of vessels by 50% to 12 from its initial fleet of eight ships. In total, the four new vessels are expected to raise PST’s total contracted revenue p.a. by 79% to US$61.9m. We maintain our target price of US$0.50 for PST, based on a fair value 2009 net yield of 9.5%. Maintain BUY.
FrasersCT – UOBKH
4QFY08: Rental reversion higher than anticipated
Strong rental reversion at Causeway Point. Frasers Centrepoint Trust (FCT) reported gross revenue of S$21.6m in 2QFY08, an increase of 10.3% yoy. Revenue contribution from its largest mall Causeway Point gained 11% yoy to S$14.6m benefitting from strong rental reversion and higher turnover rent. 20,816sf of retail space at Causeway Point representing 5% of total net lettable area (NLA) was renewed at 16% above preceding rental rates in 2QFY08. Revenue contribution from Anchorpoint doubled to S$1.6m after completion of asset enhancement initiative (AEI). Revenue contribution from Northpoint, however, dropped 3% yoy to S$5.4m. Occupancy at Northpoint declined from 100% in FY07 to 83.8% in 2QFY08 with anchor stores Cold Storage and Harvey Norman closed due to current AEI. Management has increased the number of leases with turnover rents from 16% in 2QFY07 to 62% in 2QFY08. Turnover rents currently accounts for 7% of total revenue.
Net property income increased 7.7% yoy to S$14.4m in 2QFY08 while distributable income grew 16.8% yoy to S$12m. FCT announced DPU of 1.75 cents for 2QFY08, an increase of 4.8% yoy. Management has again retained 10% of distributable income for distribution in 2HFY08.
Ready pipeline of acquisitions. FCT has a ready pipeline of acquisitions that will double NLA to more than 1.2m sf when fully completed. It has entered into a put and call option agreement with sponsor Frasers Centrepoint Limited for the purchase of Northpoint 2 at between S$139.5m to S$170.5m. Northpoint 2 is 70% completed and is expected to obtain temporary occupation permit by Aug 08. 68% of NLA has been committed and Northpoint 2 is on schedule to be injected into FCT in 1QFY09. We expect YewTee Point and Bedok Mall with NLA of 80,000sf each to be injected in 3QFY09 and 2QFY11 respectively. We estimate the three new malls to contribute 28.6% of total revenue in FY12.
Northpoint: short-term pain for long-term gain. FCT commenced S$30m major AEI at Northpoint, which will last from Jan 08 to Jun 09. Gross floor area will be transferred from the fourth floor to Level one to three, which provides higher rental yield. The AEI will integrate Northpoint with Northpoint 2 to create an enlarged shopping mall with total NLA of 232,000sf. Management expects average rental for Northpoint to increase from S$11.00psf pm to S$12.91 after the revamp, thus increasing net property income from Northpoint by 27% to S$17.6m/year. Unfortunately, contributions from Northpoint will be affected from 3QFY08 to 3QFY09 with lower average occupancy of 82%.
FSL – UOBKH
1Q08 DPU in line with expectations; acquisitions to boost future DPU
First Ship Lease Trust (FSLT) has announced its 1QFY08 results. Charter income came in at US$16.6m, accounting for 25.2% of our forecasts, in line with expectations while distributable cash was US$13.0m, accounting for 25.0% of our full year forecasts. Likewise, Distributions Per Unit (DPU) was within expectations at 2.59 US cents, accounting for 24.9% of our full year DPU forecast.
Earnings below expectations: Tripped by depreciation. Earnings for the period came in at US$1.7m accounting for 14.4% of our full year earnings forecasts. This is because depreciation for the period was US$11.2m vs. our estimated US$10.0m. After factoring in the higher depreciation, earnings for the period would have accounted for 25.2% of our FY08 forecasts. FSLT’s depreciation policy is to depreciate the cost of the vessel over the life of the base
lease term to an expected residual value which has not been disclosed. As the residual value for FSLT’s fleet is not disclosed, our estimated depreciation estimate was 10.7% below the actual value.
Acquisition of 2 crude tankers from Geden Lines, Turkey’s largest shipping company. On 21 April, FSLT announced the acquisition of 2 115,000 DWT crude tankers for a total consideration of US$140m. The acquisition prices are in line with recently transacted sales (US$70m for 105,000 DWT). Built by Samsung Heavy Industries, the two vessels are both less than a year old. The two vessels have been concurrently leased back to Greden for a lease term of 10 years. Lease payments are on a floating basis resettling on a quarterly basis in line with changes in the 3-month US$ Libor rate.
Management guidance on DPU accretion seems reasonable. FSLT has guided that the vessel acquisitions will generate an additional 0.16 US Cents for 2QFY08 and an additional DPU of 0.28 US Cents for each full calendar quarter thereafter. Based on the DPU guidance, we estimate the bareboat charter rate at present to be about US$20,000/ day which seems reasonable as it is at a discount to the current three-year timecharter rate of US$28,000 for vessels of this class as reported by Clarksons. The implied asset yield is about 10.0%.
Stable and visible distributions: Maintain BUY. We continue to like FSLT for its stable and visible distributions which are supported by its long bareboat charters which have an average remaining lease term of approximately 8.6 years. With an undrawn credit facility of US$150m, FSLT can continue to fund most of its remaining US$160m acquisition targets with low cost debt. We maintain our BUY recommendation on FSLT and raise our target price to from US$1.22 to US$1.24 (S$1.61) based on a FY09 yield-based target of 9.0%. We have also reduced our earnings forecasts to account for FSLT’s aggressive depreciation policy (FY08: -43%, FY09: -37%, FY10: -37%).
PST – OCBC
DPU hit by a reduced distribution payout
Results in line but… Pacific Shipping Trust (PST) posted 1Q results yesterday and things were generally in line. The first vessel out of the four acquisitions slated for 2008, Kota Nabil, was delivered in March and made its maiden contribution of 21 days of income. Gross revenue from charter income rose 4% to US$8.85m. All other charges were line except for a spike in expenses due to non-recurring charges arising from the four acquisitions. Cash income, the amount available for distribution, rose 9% YoY to US$3.7m, or 1.1 US cents per unit.
…DPU hit by reduced payout. However, PST decided to reduce its distribution payout to 90% – or a DPU of 0.97 US cent, down 7% YoY and 12% QoQ. That works out to a distribution yield of 9.3%, much lower than the other shipping trusts which are trading at over 11% yields. The press release offered a vague and contradictory explanation: On one hand, PST’s board feels that “given current financial market conditions, [it] would be prudent to set aside cash”. In the same breath – and sentence – the board is also saying that the cash is to provide working capital for growth and expansion, not for debt reduction. We note that after completing these four acquisitions, PST’s debt-to-equity ratio will hit 2x or more by yearend. At some point, an equity issue is inevitable.
Is DPU reduction permanent? A lower payout does not have to mean a lower full-year DPU, due to the new acquisitions that are coming in this year. In 2Q, Kota Nabil will make a full quarter’s worth of contribution. The other three vessels will also arrive progressively through the year. Depending on the interest expense on the new vessels, full-year DPU could still be higher than last year’s despite the reduced payout. Additionally, payout going forward is “at least 90%” so the amount retained could fluctuate QoQ.
Reducing fair value. PST’s house is still in order – its fundamentals are going strong, especially as 2008’s four acquisitions start kicking in. But a clear and coherent narrative from PST as to why they reduced payout – and for what – has yet to emerge. This story is still building. For this reason alone, we cut our fair value estimate to 48 US cents, almost 13% lower than our previous estimate. We will revisit our estimates as the narrative builds. Maintain BUY.