FSL Trust has almost doubled since March.THE 3 SHIPPING TRUSTS listed on SGX were chased up by investors in recent weeks, but they still sport high dividend yields as the table below shows.
Early this week, FSL Trust reaffirmed its Distribution Per Unit (DPU) guidance of US 2.45 cents for 2Q09 (ending 30 June 2009) or about 75% of the projected distributable cash flow.
The remaining cash from the distributable cash flow, together with the US$3.8 million retained under its distribution reinvestment scheme, will be used for a voluntary loan prepayment of US$8 million on the next interest reset date.
All of the shipping trust’s 8 lessees have been making full and prompt advance payment of their monthly lease rentals, including those for June 2009, according to FSLT's press statement.
As a result, the trust expects to meet its payment obligations.
Another shipping trust, Rickmers Maritime, paid US$0.214 DPU for the Jan-Mar 09 period, unchanged from the same quarter in 2008. It said it expected 'good operating cashflow in the next 12 months."
Pacific Shipping Trust paid DPU of US$0.98, which was slightly higher than the US$0.97 paid in the same period in 2008.
DBS Vickers analyst Suvro Sarkar this morning (June 4) issued a report, saying: ”Given the lack of near term concerns, we believe there is better visibility to FSLT’s dividend payouts, despite trading at much higher yields of about 25%. Hence, we upgrade the stock to BUY, and our DDM-based target price is revised up to S$0.71.
"We are also upgrading our call on PST to HOLD with a revised target price of US$0.20, given that the worst that can happen now on its CSAV charters is a 35% rate cut. We maintain our HOLD rating on Rickmers with a revised DDM-based target price of S$0.50.”
In her report two days ago (Tues), UOB Kayhian analyst Esther Sim noted that the three shipping trusts are trading at 2010 net dividend yields of 20-40%.
"We have a BUY on PST with a target price of US$0.22, based on the discounted cash flow (DCF) valuation at a discount rate of 11% (US 5-year risk-free rate: 1.81%; market risk premium: 5.5%; annual vessel depreciation: 3.3%).
"Unlike the other two shipping trusts, PST has no loan-to-value covenants in its loan documents and all its loans are amortising. We have HOLD recommendations on FSLT and RMT with fair prices of S$0.50 and S$0.44, respectively, based on DCF valuation at a 14% discount rate (3% higher than PST's discount rate to reflect the higher risk)."
| Shipping Trust | Period | DPU (US cts) |
Unit Price | Annualised Yield |
Net Asset Value |
|
Pacific Shipping |
Q1: Mar 09 |
0.98 |
US$0.25 |
15.68% |
USS$0.38 |
|
FSL |
Q1: Mar 09 |
2.45 |
S$0.59 |
23.932% |
S$0.73 |
|
Rickmers |
Q1: Mar 09 |
2.14 |
S$0.615 |
20.054% |
S$0.84 |
The FTSE ST Real Estate index has near doubled fromits low in March this year.
UOB Kayhian overweight on REITs as refinancing risks abate
THIS MONTH marks a Fed move that is resuscitating the commercial mortgaged backed securities (CMBS) market, a major source of funding for REITs.
The move by the US Federal Reserve to accept CMBS as collateral for its Term Asset-Backed Securities Loan Facility (TALF) effective 1 Jun 2009 means the refinancing risk that has overshadowed REITs since the credit crunch began is now abating.
UOB Kayhian maintained its overweight rating for Singapore REITs in a report issued this week, preferring laggard retail and industrial REITs as it believes office REITs have already rallied to factor in the improvement in fundamentals.
As the REIT sector yield is currently 3.6 percentage points above 10-year government bonds, or 0.6 percentage points richer than a historical average spread of 3.0 percentage points, UOB Kayhian believes there is room for a narrowing of the yield spread, implying that prices of REIT counters could rise.
The positive note is that, unlike in previous recessions, there has been no distress or fire sale in the office market during the current recession. As such, valuations have been stable, decreasing the risk of a markdown in the value of investment properties on revaluation that will result in higher gearing.
Conversely, if valuations are marked down and the gearing ratio rises too near that stipulated by property fund guidelines, the REIT may resort to rights issues to pay off its debt.
However, office rentals, says the broker, are still falling but at a slower pace. Average rates for prime office space were S$10.50 per square foot in 1Q09, down from a peak of S$16.10 per square foot in 3Q08.
New supply of office space is likely to keep rentals depressed. A total of 8.3 million square feet of office space will be completed from 2Q09 to 2013, representing 11.5% of total stock.
Landmark developments include Marina Bay Financial Centre, Ocean Financial Centre, 1 Raffles Place and North Tower at Marina View.
Its “Buy” calls are on Frasers Centerpoint Trust, Ascendas REIT and K-REIT.
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Data source: http://reitdata.blogspot.com/