Month: September 2007
Shipping Trusts – DBS
Offering yield plus growth
Story: We attended Marine Money’s session on Shipping Trusts yesterday that was held at the Grand Hyatt Hotel. Sitting on the panel were management from the three SGX-listed shipping trusts – Rickmers Maritime, Pacific Shipping Trust and First Ship Lease.
Point: Management reiterated that the structure of a shipping trust is to deliver yield and growth, and that its performance and cashflows is not tied to the shipping cycle. In addition, shipping trusts need to deliver growth that was promised at IPO. In some cases to take advantage of opportunistic acquisitions, a strong Sponsor is clearly advantageous.
Relevance: We hold the view that shipping trusts offer attractive yields, averaging 9.4% for FY08 and are lagging US peers which are trading at an average yield of 6.7%. Maintain Buy for Rickmers Maritime (Buy, TP S$1.80) and Pacific Shipping Trust (Buy, TP S$0.52). We have no rating for First Ship Lease.
Panel represented by management from the three SGX-listed shipping trusts. Rickmers Maritime (RMT) was represented by CEO Thomas Preben, Pacific Shipping Trust (PST) by CEO Capt Subhangshu Dutt and First Ship Lease (FSLT) by President and CEO Philip Clausius.
Significant yield compression seen for US peers. Peers in the US operate under a Master Limited Partnership, a structure that is quite similar to a Shipping Trust structure. Yields have been compressed to an average 6.4% compared to listing yields of c.8%. The main trigger, we believe, was that these MLPs demonstrated an ability to grow via acquisitions. For comparison, RMT is offering a yield of 8.2%, while PST is trading at 9.7% and FSLT at 10.3%.
Growth through acquisition post listing. In our opinion, RMT and FSLT have demonstrated the ability to grow via acquisitions only after a few months of listing. On the other hand, PST has taken about a year to put in place growth initiatives. To elaborate :
(a) RMT’s Sponsor, the Rickmers Group, granted a Right of First Offer (ROFO) to RMT at IPO. Under this, nine 4,250 TEU container vessels were identified for injection into RMT. So far, RMT has entered into an MOU to acquire four 4,250 TEU vessels for delivery between Feb and Dec 2009. Separately, RMT has also entered into an MOU to acquire four 13,100TEU vessels for delivery between Aug and Nov 2010. Thus, capacity will rise 170%, from 40,910 TEUs to 110,310 TEUs by end 2010.
(b) Under the Right of First Refusal granted at IPO, PST plans to acquire two new 4,250 TEU container vessels from PIL for charter to CSAV, raising its capacity by 61% from 13,864 TEUs to 22,364 TEUs by end 08.
(c) Since IPO, FSL has acquired three product tankers, adding to its IPO fleet of four product tankers, three chemical tankers, four container vessels and two bulk carriers.
All three are below IPO prices, short-term risk is the weak US$. Besides a new asset class, we think that another factor for its underperformance has been the weakening US$. All shipping trusts generate US$-based cashflows. In the case of RMT which is S$-listed, the yield for FY08 can drop from 8.2% to 7.8% in the event that the
US$ depreciates 5% from current levels.
Allco – SGX
Allco (Singapore) Limited (the “Manager”), the manager of Allco Commercial Real Estate Investment Trust (“Allco REIT”) (SGX:ALLC), refers to its announcement on 14 September 2007 in relation to the acquisition of additional three properties in Japan, described in the table below:
Property: Galleria Otemae Building
Location: Number 2, Tanimachi 2-chome, Chuo-ku, Osaka-shi, Osaka-fu
Property: ACO Azabu Aco Building
Location: Number 32-7, Higashi-Azabu 2 Chome, Minato-Ku, Tokyo
Property: Ebara Techno-Serve Headquarters Building
Location: Number 1-1, Haneda 5 Chome, Ota-ku, Tokyo
(collectively, the “Acquisitions”).
The Manager is pleased to announce that the Acquisitions were completed today.
Cambridge
CIT RECEIVES STRONG SUPPORT FROM UNITHOLDERS FOR ITS EQUITY FUND RAISING
Singapore, 25 September 2007 – Cambridge Industrial Trust Management Limited (“CITM”), the manager of Cambridge Industrial Trust (“CIT”), is pleased to announce that the unitholders of CIT (“Unitholders”) have approved the issue of new units (the “New Units”) in CIT to raise gross proceeds of approximately S$193.9 million (the “Equity Fund Raising”). Three other resolutions have been passed at CIT’s extraordinary general meeting held this morning, including the approval of an interested party/person transaction (under the Property Fund Guidelines and the SGX-ST Listing Manual respectively), being the proposed acquisition of 1 Tuas Avenue 3 from C&P Asia Warehousing Pte Ltd (“C&P”). C&P is an indirect wholly-owned subsidiary of CWT Limited.
CIT will soon undertake an international roadshow in connection with its Equity Fund Raising, which will include meeting institutional investors in the United States. CIT believes that it will be the first Singapore REIT to offer its units into the United States in reliance of Rule 144A of the U.S. Securities Act of 1933. The proceeds will be used for the acquisition of 1 Tuas Avenue 3 and five other properties in Singapore, namely, 9 Bukit Batok Street 22, 7 Ubi Close, 120 Pioneer Road, 48 Toh Guan Road East (Enterprise Hub) and 23 Woodlands Terrace.
Following the EFR, CITM expects an annualised yield of 7.0% for 2007 and a projected yield of 7.2% for 2008(1). Mr Wilson Ang, CEO of CITM, said “CITM is very pleased to have the backing of CIT’s unitholders for our acquisitions and financing plans. We will be commencing our roadshow shortly, with a view to completing our offering before the end of October 2007”.
(1) Based on an illustrative issue price for the New Units of S$0.80 per unit and various assumptions contained in CIT’s circular to Unitholders dated 6 September 2007 for the forecast period from 18 September 2007 and ending 31 December 2007 and for the projection year from 1 January 2008 and ending 31 December 2008.
MMP – SGX
SGX-ST Announcement
COMPLETION OF ACQUISITION OF “FLEG AMERICA-BASHI BUILDING”
The construction of Ebisu Fort was completed in September 2007. The seven storey building includes two basement levels and is located in the Ebisu area, Shibuya-ku in Tokyo. Designed for office and retail use, Ebisu Fort is 100% master-leased and sub-tenants have commenced fitting-out.
FLEG has been appointed as the local asset manager of Ebisu Fort for a period of two years from completion, with the option for MMP REIT or its nominee to extend that appointment by another year.
With the completion of this acquisition, MMP REIT’s portfolio comprises ten assets located in Singapore, China and Japan, valued in aggregate at approximately S$1.9 billion.
Suntec – OCBC
A Quay Acquisition
One Raffles Quay to be accretive. In Suntec REIT’s (Suntec) 3Q07 results, it announced its intention to acquire a one-third stake in One Raffles Quay (ORQ) for S$941.5m from Cheung Kong. The acquisition includes a rental top up of S$103.48m. No rental details were provided but we estimate that the acquisition should be marginally accretive. However, the market was less convinced and sold it down. To recap, we saw the best way to view the rental top up is as a form of a discount. ORQ’s actual value net of the income support is thus S$838m, or a reasonable S$1,877 psf. Our views appeared to be vindicated with the recent details released by Suntec, which showed an accretion of 1-8% depending on cost and proportion of debt/equity with respect to the funding of the acquisition.
ORQ NPI yield at 4.2%. We estimate the rental that Suntec will get from ORQ (including the income support) to be about S$8.30psf/mth. Grade A office presently should be able to achieve S$12-13psf/mth. So there is some upside potential to Suntec albeit in the middle term.
Financing details out. Suntec has revealed its financing options for the ORQ acquisition. 10% will be in the form of new units issued to the vendor, with the balance 90% to be in either straight debt or a combination of debt and convertible bond (CB). The maximum CB to be issued will be S$450m with its conversion price at 25% to 50% premium above the last traded unit price and a coupon of between 2.0% and 4.0%. All details are likely to be finalised at book building.
Maintain BUY and fair value of S$2.18. Since our ratings and fair value upgrade in end July, Suntec has done well, appreciating by about 3.0%. The investment case for Suntec remains intact. It is well positioned to benefit from the retail and office sector strong performance as well as from the F1 race in 2008 and the opening of Marina Integrated Resort in 2009. Finally in so far as acquisition growth is concerned, the ORQ transaction with its sponsor implies that future acquisition of assets from its sponsor’s development in the nearby new Business Financial Centre (BFC) is also assured. We thus retain our target size of S$5.5b and our fair value of S$2.18. Maintain BUY.