Month: April 2008
JTC – BT
JTC Corporation has announced that it is proceeding to divest $1.71 billion of assets to Temasek unit Mapletree Investments Pte Ltd.
However, JTC and Mapletree will not be proceeding with the proposed listing of the portfolio of properties through a Real Estate Investment Trust (Reit) ‘at the present time’, a release issued by JTC and Mapletree said.
‘This in light of the current volatile market conditions which are not conducive for a Reit IPO. Instead, JTC will divest the portfolio of properties to a private trust sponsored by Mapletree,’ the release said.
The properties to be divested comprise 39 blocks of flatted factories in various locations including Kaki Bukit, Kallang Way, Loyang, Serangoon North and Tanglin Halt, 12 amenity centres, six stack-up buildings, a ramp-up building, The Synergy and The Strategy at International Business Park in Jurong and The Signature at the Changi Business Park, plus one warehouse building at Clementi West. The transfer of properties to Mapletree is expected to be completed by July 1. — BT newsroom
KREIT – UOBKH
1QFY08: Positive rental reversion kicking in
K-REIT reported gross revenue of S$11.2m in 1QFY08, an increase of 29.8% yoy. Distributable income surged 165.9% yoy to S$11.4m. K-REIT announced DPU of 4.60 cents for 1QFY08, an increase of 159.9% yoy. The results were substantially better than our expectations as interest expense for bridging loan from Kephinance Investment (estimated at 2.4% compared to our assumption of 3.5%), a subsidiary of Keppel Corporation, was lower than expected.
Revenue contribution from existing properties Prudential Tower, Keppel Towers & GE Tower and Bugis Junction Towers increased 42.8%, 63.4% and 13.6% yoy respectively. The acquisition of One Raffles Quay (ORQ) was completed on 10 Dec 07. Average gross rent increased 14% qoq to S$6.86 due positive rental reversion from existing properties and full quarter contribution from ORQ. The one-third interest in ORQ provided total income of S$10.9m, including income support of S$6.1m. Committed occupancy was 99.6% at Mar 08.
Benefiting from positive rent reversions. K-REIT is well positioned to ride the upswing in office rentals with 24.2% of net lettable area (NLA) due for expiry and another 15.5% of NLA due for rent review in 2008 and 2009 when supply of office space in Central Business District is limited. Current asking price is S$15 to S$18psf pm for Prudential Tower and above S$10psf pm for Bugis Junction Towers, Keppel Towers and GE Tower. Average portfolio gross rental was only S$4.65psf pm (excluding contribution from ORQ) in 4Q07. There is significant room for leases to be renewed at higher rates. Rentals for Grade A office space within Raffles Pace gained a further 5.3% qoq to S$17.52psf pm in 1Q08.
Rights issue strengthen equity base. K-REIT Asia has proposed 8-for-5 renounceable rights issue at S$1.39 per unit. Keppel Corporation and sponsor Keppel Land, who own 72.7% of K-REIT in aggregate, have given irrevocable undertaking to take up their respective allocations of rights units. K-REIT will raise gross proceeds of S$551.7m, which will be utilised to repay bridging loan from Kephinance Investment. K-REIT will seek refinancing for the balance of bridging loan of S$391.3m due in Sep 08 with long-term debt. Gearing will be reduced from 53.9% to 27.7% after completion of the rights issue. Book NAV will be reduced from S$3.78 to S$2.26 per share.
K-REIT provides attractive FY08 distribution yield of 8.84%. We have assumed that the balance of bridging loan from Kephinance Investment is refinanced at steeper interest rate of 4.2%. Our target price is thus reduced to S$1.81, taking into account dilution from the rights issue.
FSL – UOBKH
FSTL SP
Share price: S$1.10
FSL Trust has just announced that it has acquired two crude oil tankers from Turkey-based Geden Lines (“Geden”) for a total consideration of US$140 million. The acquired vessels have been concurrently leased back to the seller for a lease term of 10 years. The acquisition of the two crude oil tankers will be significantly and immediately accretive to FSL Trust’s distribution per unit (“DPU”) and will generate an additional DPU of US0.16¢ for 2Q FY2008 and an additional DPU of US0.28¢ for each full quarter thereafter. As a reference, the full quarter DPU of US0.28¢ represents an additional 11.6% compared to the DPU of US2.42 cents paid for 4Q FY2007. With the purchase of its first crude oil tankers, FSL Trust has successfully diversified its customer base further, and has achieved close to half of its acquisition target of US$300 million for FY2008.
We will provide more details after the analyst briefing on Thursday. Our call on the stock remains a BUY with a target price of S$1.72.
AREIT – CIMB
No surprises
• FY08 results in line. Gross revenue was S$322.3m in FY08, up 13.9% yoy. Although this was marginally below our expectation (94.3% of full-year forecast), lower-than-expected interest rates brought FY08 distributable income to S$187.3m and DPU to 14.1cts, in line with consensus (13.9cts) and our estimates (13.8cts).
• Warehouse retail segment yielded 9.1%. Warehouse retail posted the strongest yoy growth in net property income, up 343% to S$11.1m. This was led by full contributions from the Courts and Giant buildings which had been completed at the end of FY07 and early FY08. At development costs of about S$121m, net yields from this segment were 9%, above average acquisition yields of 6-7%. The other segments also posted strong yoy growth of 6-15%.
• Short-term borrowings to drop from 15% to 2%. As at 31 Mar 08, A-REIT’s short term debt of S$238m was 15% of its total borrowings of S$1.6bn. Management addressed concerns over its growing short-term liabilities with the assurance that a 3-year term loan facility for S$200m would be finalised in about two weeks. This would lower its short-term debt to S$38m, or 2% of its total debt. About 72% of its interest exposure is fixed at a weighted average cost of 3.1%.
• Possible overseas acquisition in two years. Management indicated that it may acquire overseas properties in about two years, after its S$309m of development projects are closer to completion. Targets are likely to be in neighbouring countries such as Vietnam and Malaysia. Acquisitions from Ascendas’s ASEAN Business Space Fund are also possible (see earlier note dated 14 Mar 08).
• Maintain Outperform with higher target price of S$3.07 (from S$2.99). We adjust for a higher rental base for the warehouse retail segment, increasing our FY09 DPU forecast to 15.3cts (+2.9%) and FY10 forecast to 16.4cts (+0.3%). Our DDM-derived target price (discount 6.7%) increases correspondingly from S$2.99 to S$3.07. Maintain Outperform.
AREIT – DBS
A-List player
Story: Ascendas recorded a strong end to FY07/08 with a 10.8% growth in DPU to 14.13cts in line with expectations. NPI grew 15.8% y-o-y to S$243m, on top of a 13.9% growth in gross revenues to S$322m. Main contributors for the strong operational performance were I) an increased portfolio occupancy (98.4% compared to 96.4% yoy), ii) organic growth from positive lease rental reversions of 274,061 sqm of its NLA during the year and iii) partial contributions from its seven new acquisitions and its development project, HansaPoint@CBP and from its asset enhancement initiatives. As at 31st Mar 07, its NAV per share was S$1.84, up from $1.49 a year ago..
Point: The strong result reaffirms A-REIT manager’s ability to deliver value through acquisitions and its prudent capital management which resulted in a flexible 38.2% gearing ratio, allowing a debt headroom of c.S$880m before it reaches the 60% regulatory limit. We believe that A-REIT will utilise debt to fund its short-term investment activities. While maintaining our acquisition assumptions of S$400m p.a till FY11, we have slightly revised our funding assumptions to be fully funded by debt in FY09 and thus maintaining a LT gearing ratio of 45%. As a result, we estimate A-REIT to deliver a higher FY09 and FY10 DPU of 15.6cts and 15.9cts respectively.
Relevance: We remain confident of A-REIT’s ability to drive DPU growth moving forward from a i) development pipeline worth c.S$300m, ii) sourcing for 3rd party properties, iii) active asset management in optimising property yields and at the same time, keeping its interest cost and repayment at a manageable level. A-REIT is currently trading at a FY09 and FY10 yield of 6.6% and 6.8% respectively . Maintain BUY with a revised TP of S$2.86 based on DCF.