Month: March 2008
Rickmers – BT
Rickmers inks US$1.35b deal
Purchase of 13 new container ships will triple contracted fleet capacity
RICKMERS Maritime has moved a step closer to acquiring 13 new vessels that are expected to treble its contracted fleet capacity when fully delivered.
The company, which owns and operates container ships, has inked a memorandum of agreement (MOA) to buy the 13 new container ships from Polaris Ship Management Company for US$1.35 billion.
This follows the preliminary agreements that were signed between the two companies last year. The ships, slated for delivery between 2008 and 2010, will take the firm’s fleet size to 23 and increase its contracted fleet capacity by over 220 per cent.
Five 4,250 TEU (twenty-foot equivalent unit) vessels from this acquisition will be chartered to Mitsui OSK Lines, while four others of similar capacity will be contracted to South Korea’s Hanjin Shipping. Four 13,100 TEU vessels, among the largest in the world, will be chartered to AP Moller-Maersk. The tenure of these fixed-rate charters range from seven to 10 years.
‘I am confident that our investors will share our excitement with this 222 per cent growth pipeline, which includes four of the largest container ships ever built,’ said Thomas Hansen, CEO of Rickers Trust Management (RTM), which manages Rickmers Maritime. ‘The MOA signifies our commitment in growing the trust and we will continue to keep a lookout for other viable acquisitions that fit our investment mandate and allow us to deliver positive returns to our unit holders.’
The ships are set to boost Rickmers’ distributable cash flow once they are delivered and in operation. ‘They are expected to increase Rickmers Maritime’s aggregate contracted revenue in excess of US$2.1 billion for the years up to 2010,’ said Quah Ban Huat, Rickmers Maritime chief financial officer.
The purchase of the vessels is still subject to the approval of unit-holders.
CCT – UOBKH
Leveraging on positive rental reversion
CapitaCommercial Trust (CCT) invests in income producing real estate used for commercial purposes. It owns nine properties in Singapore with 2.3m sf of office space, which accounted for 7% of private office stock within Downtown Core. CCT has a 30% stake in Quill Capita Trust (QCT), a commercial REIT listed on Bursa Malaysia. It has a 7.4% stake in Malaysia Commercial Development Fund (MCDF), which is the largest private real estate fund in Malaysia focusing on investments in Kuala Lumpur and the Klang Valley. CCT was assigned corporate rating of A3 with stable outlook by Moody’s Investors Services.
Huge room for rental reversions. Rentals for prime office space within Raffles Place and Marina Bay area has shoot up from S$8.60 in 1Q07 to S$15.00psf pm in 4Q07, a result of supply crunch coupled with strong demand from financial institutions and oil & gas companies. Rentals for Grade A office space is even higher at S$17.15psf pm in 4Q07. According to CB Richard Ellis, rentals for Grade A office space could average S$18.50psf pm by end-2008, a further increase of 7.9%. CCT is well positioned to benefit from positive rental reversion as 56.9% of its leases for office space are up for renewal in 2008 and 2009, when supply coming on stream is fairly limited.
54% of office space at 6 Battery Road is up for renewal in 2008 and 2009. We understand that Standard Chartered has renewed leases for 130,000sf at average rate of S$14.95psf pm for three years in Jan 08 compared to previous rate of S$7.00psf pm. 53% of office space is up for renewal in 2008 at Robinson Point with existing rent at only S$4.00psf pm. 53% of office space is up for renewal in 2009 at Raffles City Tower with existing rent at only S$3.40psf pm. Positive rental reversion from these prime office buildings provides revenue growth of 14.8% in FY08 and 12.4% FY09.
Redevelopment for Market Street Car Park. CCT has secured Outline Planning Permission for the redevelopment of Market Street Car Park into a premium Grade A office tower with estimated net lettable area (NLA) of 680,000sf. Management estimated that the site cost between S$1b to S$1.5b to be redeveloped, depending on the amount of development premium imposed. Construction is likely to commence in late-08/early-09 and completion by 1H2012. The project is likely to be undertaken by a JV with option for CCT to repurchase at a later stage when rentals have stabilised. Sponsor CapitaLand is the most likely JV partner. We believe a 50:50 JV is possible, particularly if the project is developed in phases.
No risk from refinancing. CCT’s current gearing is low at 24% in Dec 07. The company issued S$150m 3-year medium term note with attractive fixed interest rate of 3.05% in Mar 08. This has largely satisfied its funding requirements for refinancing short-term borrowings and the acquisition of Wilkie Edge, a mixed development project at Selegie Road.
CCT plans to expand asset size from current S$5.3b to S$6b by 2009. Potential pipeline of acquisitions from sponsor CapitaLand includes One George Street with NLA of 448,000sf. There is also latent potential to redevelop Golden Shoe Car Park. CCT provides FY08 distribution yield of 5.12%, a healthy spread of 3.04% over 10-year Singapore government bond yield at 2.08%.
AllCo – BT
Allco Reit fails in legal bid to head off ratings downgrade
Moody’s lowers rating after court sets aside injunction
Allco Commercial Real Estate Investment Trust (Allco Reit) has failed in its attempt to obtain a court injunction to head off a downgrade by Moody’s Investors Service.
And the ratings agency has gone ahead to downgrade the Reit, as well as signal the possibility of a further cut in ratings.
Allco Reit, represented by Senior Counsel Alvin Yeo of Wong Partnership, had applied for an injunction from Singapore’s High Court to prevent Moody’s from issuing a downgrade on the trust.
It is believed the Reit sought the injunction as it felt that a ratings downgrade would have interfered with its fund-raising efforts.
The application for the injunction had been initiated by British and Malayan Trustees on behalf of Allco Reit.
But the Reit’s injunction was set aside yesterday morning by Justice Choo Han Teck. Allco Reit had intended to appeal the decision, but the High Court announced several hours later that the trust had decided to withdraw its appeal.
Moody’s subsequently went ahead with its downgrade of Allco Reit, announcing its rating yesterday afternoon. The agency lowered the trust’s corporate family rating to ‘Ba2’ from ‘Ba1’ – and retained the ratings on review for further possible downgrade.
It said that the review would focus on issues raised by Allco Reit’s announcement on March 9, the progress and terms of its refinancing efforts for debt maturing in coming months and other material developments affecting Allco Reit.
Representatives from Allco Reit, when contacted, declined to comment on the court proceedings. But the Reit’s manager, Allco (Singapore) Limited, subsequently issued a statement on the Singapore Exchange’s website, confirming the ratings downgrade and ongoing review of that rating by Moody’s.
Allco Reit’s concerns about the impact of a ratings downgrade on its fundraising efforts were heralded by Fitch Ratings last week. Fitch had signalled that the credit ratings of Singapore property trusts may change because of expected mergers and acquisitions.
Fitch had expressed concern that the global credit crunch sparked by US mortgage defaults may impact the ability of Singapore Reits to take advantage of any acquisition opportunity and that it would certainly limit the number of any interested parties in any asset disposals.
Allco Reit had earlier this month said that it may sell its Australian assets – properties valued at A$483 million (S$617 million) – which include its 50 per cent interests in Perth’s Central Park office tower and Centrelink Headquarters in Canberra. The Reit is also invested in Allco Wholesale Property Fund which in turn has interests in several properties in Sydney.
Its three key properties – China Square Central and 55 Market Street in Singapore, and Central Park in Perth – had a combined value at the end of December of $1.13 billion, based on the latest revaluation.
MapleTree – BT
Mapletree Logistics buys two warehouses for $56m
MAPLETREE Logistics Trust (MapletreeLog) is acquiring two warehouses in Singapore for a total consideration of $56 million.
MapletreeLog, through its trustee, HSBC Institutional Trust Services (Singapore) Ltd, has signed two put and call option agreements to acquire the two warehouses from Cougar Holdings Pte Ltd, a wholly owned subsidiary of Menlo Worldwide LLC, the global logistics unit of New York- listed Con-way Inc.
The two properties, located at Boon Lay Way and Benoi Road, cost $48 million and $8 million, respectively. The properties will be leased back to Menlo’s Cougar Express Logistics for an initial term of 10 years with an option to renew the lease for further consecutive periods of five years each.
The acquisitions will be accretive to MapletreeLog’s distribution per unit (DPU). The proforma financial effect of the acquisitions on the DPU for the financial year ended Dec 31, 2007 is an additional 0.13 Singapore cent per unit.
Said Chua Tiow Chye, chief executive officer of Mapletree Logistics Trust Management (MLTM), the manager of MapletreeLog: ‘The properties are well located in established industrial areas and are within close proximity to Jurong Port and the larger Jurong Industrial Estate. . . These accretive assets will add to the trust’s stable core of long-term leases which generate stable returns to our unitholders.’
Menlo and its subsidiaries are also MapletreeLog’s tenants in two of its existing properties and the acquisitions will further strengthen the partnership, Mr Chua added.
The acquisitions are expected to be completed by Q2 2008. MLTM said it is confident that at their completion, MapletreeLog will have sufficient debt capacity to fund the acquisitions wholly by debt. It will explore alternative means of funding should the need arise.
SREIT – BT
Analysts still upbeat on Reits but investors wary
FOR some time now, analysts have been saying that real estate investment trusts (Reits) are a good shelter in stormy markets, given their attractive and steady yields. But investors are still not biting, as concerns remain about Reits’ ability to raise capital or refinance debt.
The FTSE ST Reit Index closed yesterday at 735.96, about 13 per cent down since the index was launched on Jan 10. It has slumped this month since hitting 798.91 on Mar 4.
Even so, analysts have continued to issue positive calls. In a report released on Monday, DMG & Partners said Singapore Reits (S-Reits) were good value given the widening yield spread against the 10-year SGS (Singapore Government Securities) bond. S-Reits offer on average yields of 6.4 per cent, compared with 2.08 per cent for 10-year bonds, the report said.
An earlier report by Goldman Sachs also put an ‘overweight’ call on the sector. Analyst Leslie Yee said that mergers and acquisitions are likely to be positive for Reits. Large Reits will have another avenue for growth, and investors in those Reits bought out can cash in on premiums paid for an acquisition.
And last Friday, Credit Suisse initiated coverage on three retail Reits, saying that growth in that sector will be supported by strong consumption expenditure and buoyant tourism. ‘Central retail supply can be readily absorbed while suburban supply is not excessive,’ Credit Suisse said.
But Reit share prices suggest that investors are still skittish. DMG analyst Terence Wong said: ‘Right now cash is king. In a bear-like situation, it’s not unusual that people are selling everything they can,’ he said. ‘But our calls are mid to long term.’
Although their reports were generally upbeat, analysts said that worries remain. Despite falling Sibor (Singapore interbank offered rates), corporate spreads are widening, making it more difficult for Reits to fund expansion by issuing debt, or to refinance existing debt. Allco Reit was downgraded yesterday by Moody’s to Ba2 from Ba1, following an earlier cut in January from Baa3.
Credit Suisse acknowledged in its report that ‘Reits have not been defensive, as investors have previously factored in exuberant growth expectations that were disappointed by slowing acquisition growth. The consequent high required yields are a paradox of their own’.
The house said it preferred domestically focused plays with large market caps, strong sponsors, high asset quality and low gearing. It has ‘outperform’ calls on CapitaMall Trust and Frasers Centrepoint Trust and is ‘neutral’ on Macquarie MEAG Prime Reit (MMP Reit).
Kim Eng Research in a report earlier this month noted that investors seem happy to stomach premium valuations for domestic-focused Reits that focus on retail and office space like Frasers Centrepoint, CapitaCommercial and CapitaMall.
DMG‘s report recommended Suntec Reit, Frasers Centrepoint Trust and Cambridge Industrial Trust. ‘We would prefer to go for low-geared Reits (20 per cent to 50 per cent) which have lower holding costs and are more able to wait for credit markets to improve.’