Month: May 2008
HWT – DBS
Smooth sailing to start off with!
Story: Net operating income for 1Q08 came in at S$1.2m, compared to our projected loss of S$1m, and the difference can be largely attributed to change in accounting estimates for financial income ($0.9m) and lower operating costs (S$1.3m). Net profit for the period at S$1.1m, which includes a tax credit of S$0.3m, was even higher than HWT’s full year projection of S$0.8m as per IPO prospectus.
Point: Although tariff receipts of S$3.2m were somewhat lower than our projected S$4.2m, results surprised on the upside as operating costs were much lower than expected for the quarter. Maintenance expenses were lower because all except one of the eight operating plants are newly constructed. The average utilization rates of these plants have increased steadily to 51% in 1Q and is expected to ramp up over time. Operating and maintenance income of S$1.8m represents about 10% of FY08 forecast of S$18.4m but this is expected to increase more than proportionately through the course of the year with the ramp up in utilization of existing and completing plants. Finance income was much higher than projected at S$1m for the quarter and repayment of financial receivables lower than expected, as HWT changed its INT FRS 112-related accounting estimates. DPU after waiver of distributions in respect of Hyflux units was 0.87 cents and represents 42% of HWT’s 1H08 projected DPU of 1.91cts.
Relevance: Though the operating expenses are expected to normalize over the year, we believe there could be added upside arising from potential cost savings and tariff increases, and raise our FY08 and FY09 DPU forecasts to 4.7 cents and 5.4 cents, respectively. Taking into account the revised accounting estimates, which recognize more interest repayment than capital repayment on the financial assets, we have also revised up our revenue and net profit numbers. Maintain BUY at a revised DDM-backed TP of S$0.90 (Cost of Equity 11.4%).
AllCo – Phillip
Allco Commercial REIT (Allco) reported results for the quarter ended 31st Mar 2008 that were generally boosted by acquisitions made in 2007 compared to the corresponding period last year. Gross revenue for the period is $28.4 million (+132.1% YoY, +6.7% QoQ), net property income is $22.1 million (+115.9% YoY, +7.1% QoQ) and distributable income is $11.3 million (+42.4% YoY, -27.2% QoQ). However DPU remains flat at 1.60 cents due to the enlarged share base from the rights issue conducted in June 2007 as well as higher finance expenses.
High finance expenses eating into DPU. Finance expenses are substantially higher (+141.1% Yoy, +26.6% QoQ) as the acquisitions are essentially finance by debt. Going forward, we expect borrowing expenses to continue to be the main drag on distributable income due to the higher margin of the refinancing terms.
Growth strategy. Management attention will be focused on asset enhancement initiatives (AEI) on its Singapore properties. It highlighted a series of enhancement works on the Keypoint building. Phase 1 enhancement is expected to be completed around November 2008 and phase 2 will be around May 2009. Recent rental activity has seen leases signed at $6.39, which is an increase of 236% over the existing rent of $1.90. Current average office rental is around $3.28. Management expects to sign rental rates of $5-$8 in near-term renewals or take-ups. Almost 86% of leases are expiring in 2008 and 2009.
Divestment of Australia properties. Further to the strategic review of its portfolio, Allco has plan to divest its Australia properties, namely Central Park and expects to fully redeem its investment of AWPF. Proceeds will be used to lower leverage to 30%. Currently the gearing of Allco is 44.8%.
Income guarantee from AFGL. Allco will be receiving arrears of A$1.58 million for the period of 1 July 2007 to 31 Dec 2007 in relation to the income support deed of Central Park from Allco Finance Group Limited. There is also a potential claim of A$6.39 million for the period of 1 Jan 2008 to 26 Mar 2009.
Valuation and recommendation. We revise our estimates slightly to account for the higher rental reversions of the Keypoint building as well as higher finance expenses. We also wrote back the income support of A$1.58 million into our net income forecast for FY08. We have a FY08 DPU forecast of 7.35 cents, which translates to a yield of 8.9%. Fair value is lowered slightly from $1.07 to $1.05. We maintain our buy recommendation for Allco. Our valuation hinges on the outcome of the sale of Central Park and we will revisit our valuation pending further announcement.
CCT – UOBKH
Renew long-term lease with HSBC
CapitaCommercial Trust (CCT) has entered into a 7-year renewal lease agreement commencing 30 Apr 2012 (after expiry of existing lease) and expiring on 29 Apr 2019 for total contract value of S$143.1m. The lease agreement involves capex of S$7m to be incurred by CCT for improvement work on HSBC Building, which is expected to commence in late-2008. We estimate that the contract value of S$143.1m represents average rental of S$8.50psf pm, much higher than existing passing rent of S$3.63psf pm from HSBC Building. HSBC will bear most property operating expenses such as maintenance, utilities and property tax for HSBC Building. We view the renewed contract as a positive development although HSBC Building contributes only 3.1% of revenue in 1Q08.
Allco – SGX
Allco REIT appoints sales agents for its Australian properties
of Allco Commercial Real Estate Investment Trust (“Allco REIT”) (SGX: ALLC) today announced that sales agents have been formally appointed to market the public sale of Allco REIT’s interests in Central Park, Perth and Centrelink Headquarters, Canberra (“Australian Properties”).
Central Park, Perth
CB Richard Ellis (C) Pty Limited (“CBRE”) and Jones Lang LaSalle (WA) Pty Limited (“JLL”) have been appointed to sell Allco REIT’s 50.0% indirect interest in Central Park, one of Australia’s premier office towers.
Centrelink Headquarters, Canberra
Also being offered to the market is Centrelink Headquarters in Canberra, which is jointly owned by Allco REIT and Record Realty.
Sale Process
Allco REIT has not yet agreed any terms or entered into any binding arrangements with respect to the sale of the Australian Properties. The terms on which the Australian Properties will be divested will be recommended by the Manager on the basis of achieving the best possible outcome for holders of Allco REIT units (“Unitholders”) and will be subject to all Singapore regulatory requirements, including compliance with the Listing Manual issued by Singapore Exchange Securities Trading Limited (“SGX-ST”) and the Property Funds Guidelines at Appendix 2 to the Code on Collective Investment Schemes issued by the Monetary Authority of Singapore.
Mr Nicholas McGrath, Chief Executive Officer and Managing Director of the Manager said “I am very pleased to appoint a highly skilled and knowledgeable team to assist with the orderly sale process of these high quality assets with a view to achieving the best possible outcome for Unitholders of Allco REIT. Appointment of agents for the divestment of our Australian Properties is the first step in implementing the strategic focus of Allco REIT for 2008: redeployment of capital into Asia.”
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