Month: March 2008
AllCo – BT
Despite downgrade, Allco Reit gets some relief
It manages to secure extension of its debt repayment deadline
Allco Commercial Real Estate Investment Trust (Allco Reit) – which went to court to fend off a ratings downgrade – has succeeded in obtaining an extension of its debt repayment obligations, despite the ratings cut.
The trust had sought to obtain an injunction to prevent Moody’s Investors Service from downgrading its credit rating, as it feared the revision would hurt its efforts to refinance some S$620 million in debt.
But the injunction was set aside this week and Moody’s went ahead to lower Allco Reit’s corporate family rating to ‘Ba2’ from ‘Ba1’ – and retained the ratings on review for further possible downgrade.
The trust, however, still managed to obtain some relief on its debt refinancing obligations.
Allco (Singapore) Limited, the manager of Allco Reit, announced yesterday that the trust had received in-principle approval for the extension of the maturity date of S$550 million of debt from July 31, 2008 to Dec 31, 2009.
Allco Singapore said that it is reviewing the terms and conditions of the extension and will soon execute binding documentation.
It expects to repay the remaining S$70 million of debt, due to mature on Nov 22, 2008, with the proceeds Allco Reit is likely to receive from Allco Wholesale Property Fund – which has interests in several properties in Sydney.
Allco Reit had announced earlier this month that it is considering selling the assets of Allco Wholesale Property Fund – and intends to return the net proceeds to unitholders in the third quarter of this year.
It was this proposed sale of its Australian assets that sparked off the ratings downgrade in the first place.
Moody’s ratings review panel had decided to meet, upon Allco Reit announcing its intention to divest its Australian assets – properties valued at A$483 million (S$603.3 million). The panel agreed to downgrade the trust’s credit rating, on the basis that the sale would affect its credit standing.
Allco Reit felt the agency’s move was ‘precipitous and wholly unwarranted’, as it had not yet sold the assets but was only considering doing so. It sought an injunction to prevent Moody’s from issuing the downgrade, as it felt that would hurt its attempts to obtain credit approvals from bankers for the refinancing of the S$620 million in debt.
But Moody’s battled the injunction, arguing that it undermined the agency’s very purpose and integrity and that it would prevent the public from accurately judging Moody’s assessment of Allco Reit’s credit worthiness.
The High Court set aside the injunction on Tuesday, and Moody’s issued its downgrade.
Shipping Trusts – OCBC
Trust versus Trust
Attractive asset class as a whole. We have BUY ratings on all three shipping trusts – Rickmers Maritime (RMT), Pacific Shipping Trust (PST), and First Ship Lease Trust (FSLT). The asset class as a whole is very attractive – unitholders gain exposure to an attractive sector while sidestepping some of the inherent volatility of the industry thanks to long lease terms and cash flow visibility. The trusts’ shipping income is taxexempt and distributions are also tax-exempt for all investors. All three trusts offer attractive distribution yields of more than 10-12% and potential for DPU accretion.
Payout strategy and asset yields vary. We believe key performance criteria include: 1) asset yields and distribution pay-out strategy, and 2) growth plans and leverage. We estimate that PST’s vessels feature relatively higher asset yields versus the other listed peers. Meanwhile, FSLT is the only trust to distribute 100% of its cash income. Consequently, its DPU consists of a return on unitholders’ investment (net income) and a return of invested principal (depreciation). PST has pegged its debt repayment to its depreciation charge in an effort to preserve NAV. RMT is currently retaining more than 25% of its cash income, which it can utilize for capex. RMT’s future payout strategy has not been explicitly stated.
Big plans for growth. All three trusts plan to aggressively grow through DPU-accretive acquisitions, with RMT growing at the fastest pace and magnitude. PST and FSLT are targeting about US$200 and US$300m in acquisitions yearly. RMT is contracted to acquire US$1.35b worth of vessels over 2008-2010, once approval is finalized in an upcoming EGM. These growth plans are powered through leverage. By the end of this year, we believe the trusts’ debt-to-equity will range from over 1x to 2x. Business trusts have no gearing limit but we believe a sustainable debt-to-equity target is 1x because of the high volatility in vessel values. In our view, the trusts’ growth beyond 1-1.5x can only be sustained by further equity issues. Some of the trusts may have an option to postpone the next issue – for instance, RMT’s debt-to-equity might increase to 3x before the next tranche is raised – but the need for fresh equity is inevitable at this pace.
Our top pick is PST. The reengineering of PST’s debt model over 2008 presents a one-time opportunity of sharply increasing DPU through accretion from leverage and a higher payout strategy.
Source : OCBC Securities
AllCo – BT
Allco Reit says debt extension approved
Singapore-listed Allco Commercial Real Estate Investment Trust said on Thursday it has received in-principle approval for a 17-month extension of the maturity date for $550 million (US$396.5 million) of its debt.
The Reit’s manager ‘is currently reviewing the terms and conditions of the extension and will execute binding documentation as soon as practicable,’ it said in a statement, adding that the due date has been extended from July 31 this year to end-December 2009.
Allco Reit said that another $70 million of debt due to mature on 22 November this year will be repaid in full with the proceeds from its sale of the Allco Wholesale Property Fund.
Allco Reit, which owns malls and offices in Singapore and Australia, late on Wednesday announced the resignation of three directors appointed by parent Allco Finance Group so that the board will have a majority of independent directors.
Moody’s Tuesday downgraded Allco Reit’s rating to Ba2 from Ba1 and said the rating ‘remains on review for further possible downgrade’.
That followed a a failed legal attempt by the Reit to stop Moody’s from downgrading its shares as that would have complicated the trust’s fundraising efforts. — REUTERS
CRCT – BT
CapitaRetail China Trust eyes tripling assets to $3b by end-2009
It plans to cap borrowing at 35% of assets, raise equity
Singapore-listed CapitaRetail China Trust (CRCT) said yesterday that it expects to triple assets to $3 billion by end-2009 as investors remain enthusiastic about China’s retail sector.
CRCT, which owns eight China malls worth $1.1 billion, is confident it will be able to raise new equity when required and cap borrowings at 35 per cent of assets, chief executive officerLim Beng Chee said in an interview.
‘I’m lucky that China is a huge market … I can see a lot of growth in the market that I have, whereas in Singapore it is not easy to see the growth unless you have the scale,’ he said, when asked about failed equity raising efforts by other real estate investment trusts (Reits) because of weak market conditions.
Mr Lim said that CRCT, which was listed slightly over a year ago, wanted to be more conservative with its borrowing until it was certain of getting an investment-grade rating.
‘We will gear up when we have a more solid track record,’ he said, adding that the rating agencies are not familiar with China’s property market and legal system and have to date only assigned an investment-grade rating to one developer there.
Under Singapore law, Reits must cap their debt-to-equity ratio at 35 per cent unless they get a rating from international agencies such as Moody’s and Standard & Poor’s.
Singapore’s once booming Reit sector is expected to consolidate in the coming months as weaker players sell assets or merge with their stronger counterparts.
Several high-profile listings by India-based developers such as Indiabulls and DLF have been postponed or abandoned, while existing trusts such as Allco Commercial and MacarthurCook Industrial have dropped plans to raise funds for new acquisitions via secondary offerings.
CRCT, which is managed and part owned by CapitaLand , South-east Asia’s biggest developer, has first rights of refusal to malls owned by CapitaLand and its various investment funds.
Its pipeline of new properties include 16 existing malls as well as another 49 that will open in the next few years. Its current strategy involves acquiring and managing malls that cater to China’s growing middle and upper-middle class consumers. — Reuters
MI-REIT – BT
MacarthurCook Reit to fight any hostile bid
Trust now keen on buying two Asian properties, not 10
THE manager of Singapore-listed MacarthurCook Industrial Reit, a subject of takeover speculation, said yesterday that it will fight any hostile bid to acquire the trust.
‘I can guarantee you that it will be contested. We certainly won’t let somebody just walk in the door and take over management,’ Craig Dunstan, managing director of Australia’s MacarthurCook Ltd, told Reuters in an interview.
He said the Australian property manager now controls 13.2 per cent of MacarthurCook Industrial, raising its stake from an initial 2.3 per cent when the trust was listed last April.
Singapore’s real estate investment trust (Reit) sector is expected to consolidate in the short term, and brokerages such as Goldman Sachs have cited MacarthurCook Industrial as a potential takeover target due to its diffuse shareholding structure.
The absence of a large controlling shareholder makes it easier for predators to buy a majority stake.
MacarthurCook Industrial’s share price fell 2.9 per cent yesterday, while the broader Singapore market was flat.
MacarthurCook Industrial and other Singapore Reits controlled by Australian firms have suffered the most in the current weak market due to concerns over their ability to raise debt or equity.
Allco Commercial Reit, which is planning to sell its Australia properties as embattled manager Allco Finance Group struggles to repay its debts, fell 8.1 per cent after Moody’s downgraded its credit rating further on Tuesday.
Mr Dunstan said MacarthurCook Industrial, which owns about $620 million worth of factories and warehouses, mainly in Singapore, will not meet its annual asset growth target of $500 million for the fiscal year to end-March 2009.
‘We’re not going to raise equity in today’s market at today’s prices, because that’s not the right thing to do for our current investors,’ he said.
MacarthurCook Industrial currently trades at around a 24 per cent discount to its net asset value of $1.30 a share.
The property trust dropped a $200 million equity fundraising exercise in January citing poor market conditions, and is now looking to buy two properties in Asia instead of the 10 it was considering initially, Mr Dunstan said.
‘Our responsibility is to generate good risk-adjusted returns for our current investors. They will continue to get a good return whether we buy another asset in the next 12 months or not,’ said Mr Dunstan, a former lawyer who founded MacarthurCook in 2002. — Reuters