Month: August 2008
Allco – BT
Allco Reit gets BB long-term rating from S&P
Agency also places rating on CreditWatch with positive implications
STANDARD & Poor’s Ratings Services yesterday said it has assigned its ‘BB’ long-term corporate credit rating to Allco Commercial Real Estate Investment Trust (Allco Reit).
At the same time, it placed the rating on CreditWatch with positive implications.
The rating on Allco Reit reflects the trust’s smaller asset base compared with its global peers’.
It has nine properties (excluding units in unlisted property fund Allco Wholesale Property Fund).
‘Allco Reit also has high tenant concentration, with its top two tenants representing about 30 per cent of the gross revenue of its portfolio,’ said Standard & Poor’s credit analyst Wee Khim Loy.
‘In addition, the trust’s market and tenant diversity could decline. Should Allco Reit’s manager, Frasers Centrepoint Asset Management (Commercial) Ltd, continue the previous manager’s strategy to exit the Australian market and focus on properties in Singapore and Asia, the trust’s asset portfolio and cash flow stability would be negatively affected.’
The above weaknesses are partly offset by the quality of Allco Reit’s investment portfolio.
The Asian properties, which require minimal capital expenditure, are mostly strategically located in central business districts.
These benefits are complemented by the stable rental cash flow of Australian properties, which are backed by longer term leases.
In addition, the weighted average lease term of 4.8 years for Allco Reit’s combined diversified portfolio is higher than the average for comparable real estate investment trusts focusing on Asian office commercial properties.
Allco Reit’s nine properties have more than 400 tenants in total, spanning five markets in three countries.
The diversification strength of the investment portfolio provides cash flow stability to the business.
The rating is also supported by the enhanced financial flexibility of Allco Reit following the change in the ownership of its manager.
Impending refinancing risk declined after Allco Reit was ‘de-linked’ from Allco Finance Group (AFG). Frasers Centrepoint Ltd (FCL) acquired 17.6 per cent of Allco Reit and 100 per cent of its previous manager, Allco Singapore Ltd, from AFG on Aug 14, 2008.
Allco Reit will be eventually renamed Frasers Commercial Trust. FCL is the wholly owned property arm of Fraser and Neave Ltd, a leading consumer group with a satisfactory credit profile.
Saizen – BT
Saizen Reit’s acquisitions on hold; distribution per unit is 4.67 cents
SAIZEN Reit, which was listed on the Singapore Exchange in November last year, says it will hold out on new acquisitions for the present.
Arnold Ip, chairman of the Reit manager, Japan Residential Assets Manager Ltd (JRAM) said: ‘While there are attractive investment opportunities for Saizen Reit, the manager intends to adopt a cautious approach for the time being to conserve cash and financial flexibility, and do not envisage acquisitions in the short term.’
He added that priority will be given to financial management.
The announcement came yesterday when it also announced that distributable income for the financial year ended 30 June 2008 was $22.13 million. Distribution for the period is 4.67 cents per unit.
At the time of listing, Saizen Reit had an initial portfolio of 147 residential rental properties in regional cities in Japan. This has since increased to 166 properties in 13 Japanese cities.
As at June 30, the Reit’s portfolio was valued at $629.8 million.
Compared with FY’07, gross revenue in FY’08 increased by 87.2 per cent due to the increase in number of properties over these periods. There were 101 and 166 properties respectively at the start and end of FY 2008, while there were 62 and 101 properties respectively at the start and end of FY 2007.
Net property income increased from $18.37 million for FY’07 to $32.42 million in FY’08.
Saizen Reit did record a loss after income tax of $48.68 million in FY’08 compared with a profit of $26.86 million in FY’07. This was attributed to net depreciation in the value of investment properties of $59.8 million, one-off IPO expenses of about $10.5 million and exchange losses of around $4.2 million.
Based on the closing market price on August 26 of 50.5 cents per unit, the distribution yield was 9.2 per cent.
Raymond Wong, executive director of the Reit manager, noted that its share price had been beaten down recently – partly due to the downturn in the Japanese real estate market and news of the collapse of large Japanese developers like Urban Corporation.
But he pointed out the Reit had taken steps to strengthen its financial position to weather the next 12-months at least. ‘While also affected by the credit crunch, Saizen Reit has maintained adequate resources to repay loans falling due within the next 12 months while keeping net gearing ratio at about 36.5 per cent,’ he added.
To this end, Saizen Reit manager JRAM also announced yesterday an agreement with a European bank for a three-year term loan of $75.7 million collateralised by 38 existing properties.
Partial drawdown of the loan has taken place at a fixed interest rate of 2.67 per cent, representing a reduced rate compared with interest rate of the existing loan of 3.02 per cent.
At the operating level, occupancy rate stood at 91.4 per cent as at June 30 compared with 89.4 per cent as at December 31, 2007. Delinquency in rental collection is less than 0.03 per cent of revenue. Net property income yield is at approximately 6 per cent, providing Saizen Reit with an interest cover ratio of about 3.7 times based on its current level of borrowings.
Sean Pey Chang, CEO of the Reit manager, also said that it expects leasing activity and rental performance to be stable. Net property income in the quarter ended June 30 was $9.54 million, down marginally by 2.9 per cent from the previous quarter.
He also added that in the cities in which Saizen Reit is exposed, including Sapporo, Fukuoka and Kitakyushu, homeownership is only about 55 per cent.
Saizen Reit’s rental properties are targeted at the mass market and average rents are about US$1-US$1.50 psf.
At the end of trading yesterday, Saizen Reit’s unit price was 55 cents per unit, up 4.5 cents.
PST – BT
PST preferential offering gets strong support
It expects to issue 252.75m new units at 36.5 US cents each
A PLANNED preferential offering by Pacific Shipping Trust (PST) received 98.7 per cent approval at an extraordinary general meeting of unitholders yesterday, with some retail holders asking about extra allocations.
Although PST cannot meet such requests, ‘the overwhelming support shown by unitholders is a strong endorsement of our prudent capital and risk management strategies and our plans for future growth’, said Alvin Cheng, CEO of trustee-manager PST Management. ‘This is also testimony to the faith and confidence that institutional and retail unitholders have in our long-term vision for PST.’
PST expects to issue about 252,750,000 new units at 36.5 US cents apiece on the basis of three new units for every four existing units held. The books closure date for the offer is Sept 11, 5pm.
‘We look forward to continuing support from each and every unitholder as we endeavour to deliver stable and growing returns,’ said Mr Cheng.
Pointing out that PST’s book value is 44 US cents per unit, he said the new units are being offered at a 17 per cent discount.
He also said that the increased number of units will increase liquidity and possibly boost trading in the trust’s units. ‘There is potential upside and good value that is not being recognised by the market at the current unit price,’ he said.
The exercise will raise US$92.3 million to finance and refinance part of the purchase of four new vessels. PST sponsor Pacific International Lines now has a 34.7 per cent direct stake in the trust.
PLife – CIMB
Above the crowd
• Good exposure to healthcare assets. PLife is a healthcare real estate investment trust with six healthcare-related assets located in Singapore and Japan. It is the largest private hospital owner in Singapore with a 24% share of the private market. We expect demand for this asset class to grow strongly on the back of a greying Asian population, blooming medical tourism in the region and the Singapore government’s initiatives to establish a biomedical industry.
• Resilient income streams in inflationary environments. PLife’s income streams are protected by long lease periods of 15 years for all its assets, built-in rental adjustments linked to inflation rates, quality tenants and low property expenses.
• Lowest gearing among S-REITs, ready for acquisition growth. PLife has the lowest gearing among S-REITs, at 10% in 2Q08. With moderating borrowing costs and credit lines in place, it is equipped to grow through acquisitions in the near term.
• Initiate with Outperform and DDM-derived valuation of S$1.46. Using DDM valuation, we initiate coverage with a target price of S$1.46 (discount rate 8.1%, terminal growth 2%). This offers a total prospective return of 43.9% from potential price upside of 37.7% and a forward yield of 6.2%. PLife trades at a 22% discount to its NAV of S$1.36, representing a reasonable entry point in view of possible shortterm catalysts from acquisitions. PLife replaces A-REIT as our top pick in our SREIT universe.
a-iTrust – BT
a-iTrust buys India office space
ASCENDAS India Trust (a-iTrust) will buy 96,051 square feet of office space at India’s International Tech Park Bangalore (ITPB) for 307.8 million rupees (S$10 million).
The space, now owned by Tata Consultancy Services (TCS), will be leased back to TCS.
a-iTrust already owns 1.7 million-sq ft of space at ITPB through its Indian special-purpose vehicle International Technology Park Ltd (ITPL). Jonathan Yap, chief executive officer of the trustee-manager of a-iTrust, said: ‘As one of the four IT parks we own, ITPB has been delivering good and steady returns. Current occupancy is 100 per cent, and we continue to experience demand for space from existing and new clients.’
a-iTrust said that the office purchase is part of an agreement under which ITPL would construct and sell TCS a custom-built facility at ITPB, while TCS would, in return, sell office units at the park to ITPL.
The 515,000-sq ft custom-built facility has been completed and handed over to TCS.
The office space will be yield-accretive. The pro forma financial effect on a-iTrust’s distribution per unit (DPU) for the financial year ended March 31, 2008, is expected to be an additional 0.088 cents.
a-iTrust said the acquisition will be funded by drawing down an existing loan facility. a-iTrust’s gearing will be 5 per cent.
Upon completion of the acquisition, a-iTrust will own $1 billion of assets, comprising 4.8 million sq ft of income-producing space plus land for the development of 4.2 million sq ft of space.
Mr Yap said: ‘We will continue to focus on enhancing returns to unitholders through organic growth, developing land owned by a-iTrust, and acquisitions.’