Month: February 2012
TCT – BT
Treasury China Q4 income falls short of its forecast
TREASURY China Trust (TCT) yesterday posted a net property income of $15.9 million for the three months ended Dec 31, 2011, up 31.9 per cent from $12 million a year earlier.
In renminbi terms, Q4’s net property income of 78.68 million yuan (S$15.9 million) was 4.6 per cent lower than TCT’s own forecast of 82.47 million yuan.
Meanwhile, gross revenue for the quarter rose 27.4 per cent to $26.1 million, underpinned by the continued strengthening of its portfolio occupancy, and the increase in underlying average rent per square metre.
This was in turn driven by an average 8.5 per cent increase in rent for the 32 leases negotiated during the quarter.
Earnings per unit for Q4 2011 slipped to 8.1 cents from 8.7 cents for Q4 2010.
For the full year ended Dec 31, 2011, TCT’s net property income was $58.1 million, 0.8 per cent lower than its forecast. Gross revenue was $93.2 million.
For the period from May 19 to Dec 31, 2010, net property income was $22.6 million on revenue of $39.6 million. TCT, a Singapore-based business trust focusing on commercial real estate in China, was listed in June 2010.
TCT did not declare any distributions for the financial period, citing the ongoing uncertainty in China’s liquidity environment and its current development of The HQ – a retail and office complex in Shanghai.
TCT’s chairman, Richard Barrett, called the decision to delay the declaration of a distribution ‘one of prudence’, in order to ensure liquidity should bank lending be further tightened.
Mr Barrett also issued a note of caution for 2012: ‘Despite the (Chinese) government’s decision on Feb 17, 2012, to reduce the reserve requirement ratio by 0.5 per cent, equivalent to approximately 380 billion yuan in additional liquidity, the prospect of increased certainty from banks as to the availability of funding for the real estate sector remains patchy at best.’
The reserve requirement ratio refers to the amount of funds Chinese banks are required to hold with the central bank.
In a separate filing to the Singapore Exchange yesterday, the group also clarified that TCT, its intermediate holding companies, and its project companies are ‘in compliance with their respective debt covenants.’
TCT units fell 11 cents to close trading at $1.39 per unit yesterday.
HPH Trust – BT
HPH Trust puts faith in ports’ scale, reliability
It sees boon from bigger ships, more sharing of vessels
BIGGER vessels, more shipping lines sharing vessels – all this only bodes well for the ports held by Hutchison Port Holdings (HPH) Trust, said its trustee-manager’s CEO in an interview with BT.
‘The trust ports, in terms of scale and service reliability, are probably the best in South China,’ said Hai Chi Yuet. ‘If a vessel handles 1,000 TEUs per vessel call versus one that handles 10,000 TEUs per vessel call, the bigger one saves time berthing and unberthing, deploying gangways, resources and the like.
‘And with consortiums working together, it may mean several such vessels at one time. They can only work with certain ports in the world, not to say in South China.’
At the same time, HPH Trust’s ports are more than capable of catering to smaller vessels.
This is key especially when HPH Trust, in its wrap up of the financial year ending Dec 31, 2011, said that it would grow its market share and volumes coming from faster growing economies in the Far East, Africa, Oceania and South and Central America that typically feature much smaller vessels.
‘That is not a problem. In Yantian, we have the biggest contiguous berth frontage. The deepwater handles the very big vessels, and we have other berth space that handles the smaller ones,’ said Ms Hai.
The decision to grow volumes out of faster, newer economies, said Ms Hai, is a logical one because of their growth rates.
She added: ‘And because of the growth of international transshipment, you want to have more coverage in services instead of covering just one or two areas. That’s how international transshipment is made viable.’
Ms Hai also cautioned that while they are working with its existing set of ocean carrier customers, channelling more volumes from these newer markets involves ‘scheduling and rescheduling and this takes time’.
With the movement westward of Chinese manufacturing, there may come a time when ships may bypass the port of Hong Kong entirely and opt to transship at closer-by South Chinese ports – but the time is not now.
‘Manufacturing may be going west, slowly. But what has happened over the 10-12 months, the Pearl River Delta is still the main cargo source,’ she said.
‘Hong Kong has found its own niche: it has a free port status that is unique – there’s nothing like that in China. And Hong Kong is right next to China, so it gives Hong Kong a very competitive edge. Hong Kong has a long way to go. It may not see double-digit growth, but its growth will be sustainable.’
Since HPH Trust’s debut on the Singapore Exchange last March, the stock has lost over 20 per cent from its IPO price of US$1.01. It closed trading yesterday at 78 US cents.
However, Ms Hai and CFO Ivor Chow are more than content with it choosing Singapore as a listing location, over Hong Kong, which had since then amended its rules to allow business trust structures to list.
Said Mr Chow: ‘Hong Kong tends to focus on PE and Ebitda, and Singapore investors tend to understand what yield is about. It’s actually more conducive in Singapore, investors ask better questions.’
However, HPH Trust continues to evaluate rule changes in Hong Kong that may allow it to float its units there one day.
‘If and when suitable, we would like to be back home as well,’ said Mr Chow. ‘A lot of investors in Hong Kong like to be investing in us, and it’s not as easy for them to be investing in Singapore. We did want to IPO in Hong Kong at first, but it was not possible at the time.’
REITs – BT
Reit, stock yields reflect risk nature
IT seems the onset of the dragon year has driven home the notion that risk and return on assets are directly correlated.
Notably, Singapore-listed real estate investment trusts (Reits), which are generally perceived to be defensive counters characterised by their lower price volatility, have yielded relatively conservative returns year-to-date as compared to their higher beta Straits Times Index (STI) peers.
According to data from Bloomberg and the Singapore Exchange (SGX), since the start of 2012, Reits – comprising 22 locally listed counters – have raked in an average return of 8.2 per cent compared to the stocks of the STI which have yielded 15.5 per cent over the same period. The average price volatility for Reits is 19.9 per cent and for the basket of STI stocks is 29.6 per cent.
Theoretically speaking, it is generally believed that the higher the risk associated with an asset, the greater its potential upside, and vice versa.
Investors can typically estimate the level of risk associated with the counter by measuring its recent volatility in price, before tailoring their investment choices to suit their risk appetites accordingly.
However, there might be variations of risk and return among the various asset classes in addition to how risk can be measured, cautioned the SGX.
For instance, risk and return can vary with the pricing and fundamentals of each asset.
In addition, investors should also be aware that historical prices and volatility numbers should not be taken as a guarantee to future performance, as history will never be representative of what the future might bring.
CCT – BT
CCT acquires Twenty Anson for $430m
IN its first major purchase since the start of its portfolio reconstitution strategy, CapitaCommercial Trust (CCT) yesterday said it had acquired Twenty Anson for $430 million, or $2,121 per square foot (psf) of net lettable area.
To ensure a stabilised net property yield of 4 per cent per annum, CCT will set aside a ‘yield stabilisation sum’ of $17.1 million to be drawn upon over the first 3.5 years. This brings the total purchase consideration, via issued and paid-up share capital of First Office – a special-purpose vehicle (SPV) which owns Twenty Anson – to $446.6 million, taking into account adjustments for First Office’s net liabilities.
The acquisition will be funded using CCT’s existing cash facilities from its divestment of Robinson Point and Starhub Centre in 2010, and bank facilities. No issue of equity or rights units is required.
The acquisition is expected to generate an annualised distribution per unit (DPU) of 0.36 cent.
Comparing the property’s average passing rent of $6.18 psf per month and the current market rate of $8.44 psf per month in the Tanjong Pagar area, there is significant rental upside potential when the leases are renewed, of which 94 per cent are expiring in 2013 and 2014 – when new office supply in the CBD will be well below the historical 19-year average (from 1993 to 2011) of 1.3 million sq ft, noted Lynette Leong, chief executive officer of CCT Management Ltd.
‘Although the high proportion of lease expiries in 2013 and 2014 could expose CCT to tenancy risk for the property, Moody’s believes the well-located and good-quality property, as well as the trust’s strong reputation as an office landlord, would mitigate such a risk,’ said Moody’s in a report.
OCBC said in a report: ‘Given the reasonable price paid, we view this acquisition positively but see little accretive to RNAV at this juncture.’ It maintains a ‘buy’ call on CCT, with an unchanged fair value estimate of $1.29.
AmFraser analyst Lau Wei Chong said the price tag on the building was ‘not cheap, but quite fair’, given that the building is relatively new. ‘Going forward, CCT will probably be beefing up its portfolio of commercial assets. Looking at the situation now, rental rates for older buildings are under pressure, so CCT will also need to renew its portfolio.’
The 20-storey Grade A office tower sits on a site with a remaining lease of about 95 years. It was sold by LaSalle Investment Management and Lum Chang Development Group. Jones Lang LaSalle was the adviser for the deal.
As part of CCT’s reconstitution strategy, the trust has been undertaking asset enhancement works to Six Battery Road, and is developing its Market Street Car Park site into a Grade A office tower, CapitaGreen.
Upon completion, the acquisition of Twenty Anson will increase CCT’s total asset size to $6.9 billion.
CCT’s counter was the top traded property counter yesterday, gaining one cent to close at $1.17.
HPH Trust – DMG
DPU above expectations; raise TP
Impressive cost control. HPH Trust (HPHT)’s FY11 DPU of 37.70HK¢ was 11% ahead of our forecast (33.80HK¢) but slightly below street estimate of 39.30HK¢. The better-than-expected DPU was attributed to HPHT’s impressive cost control and low interest rate. Following the results, we raise FY12F DPU by 9% due to lower interest rate on its debts and higher 2012 throughput volume growth of 6% and 3% for HIT and Yantian respectively. We are forecasting 47.22HK¢ (6.07US¢) dividend in FY12, which implies a yield of 8.1% at its last close. We upgrade our DCF-derived TP to US$0.83, based on 8% WACC and 2% long-term growth rate (for period beyond 2015). Maintain BUY.
Extension of peak season lifted 4Q11’s volume. HIT’s 4Q11 volume showed strong growth of 10.6% YoY while Yantian registered 5.5% YoY in 4Q11. For the period between 16 Mar to 31 Dec 2011, HIT and Yantian grew by 5.5% and 0.6% respectively. HIT’s growth was ahead of its peers in Hong Kong. Yantian’s ASP was positive, up 4-5% in 2011 vs. 1% drop for HIT’s ASP (on our estimates).
Maintaining FY12 DPU guidance of 51.24HK¢. In the results teleconference, management set a high target for 2012 by maintaining its IPO DPU forecast of 51.24HK¢, close to a 11% YoY increase (seasonally adjusted). This will be driven by 5-7% throughput growth and 1-2% ASP growth. We think the target is slightly ambitious given its ports could see 5-6% increase in cost per TEU from inflationary pressure. Our DPU target is 8% below management’s guidance.
Other developments: HPH has refinanced the HKD$2.8b loan for Yantian and the next debt maturity is in 2014. The company may look to take advantage of the low interest rates by making an early move to refinance some of its debts maturing in 2014 from bonds or other instruments.