Month: May 2008
AllCo – DBS
Acquisition driven performance
Comment on Results
Allco’s results were within expectation. Gross revenue and net property income growing 76.4% and 62.3% y-o-y, respectively, to S$28.4m and S$22.1m led by contributions from new acquisitions such as the 3 Japanese properties and Keypoint, completed in 2H07. Contributions from these assets made up c80% of revenue and NPI.
However, DPU was flat y-o-y at 1.6cts due to i) dilutive impact from a higher unit base following its equity raising in July 2007, ii) increased interest expense from larger borrowings and higher interest cost (+141% to S$9m in 1Q08), and (iii) reversal of allowance of impairment of receivables from API of S$2.0m.
Moving forward, we expect bottomline growth to be fueled be organic drivers coming from positive office rental reversions and planned AEI at Keypoint. An estimated 45% of its portfolio NLA is up for renewal over FY08-09F. In addition, parent, Allco Finance Group (AFG) had recently indicated it will guarantee the payment of outstanding receivables and obligations amounting to A$7.98m (S$9m). This has not been factored into our current forecast and could raise our earnings projections by c.5%.
In terms of acquisition growth, we believe this strategy would materialize only when Allco further de-gears it balance sheet. Current gearing is at 45%. Meanwhile management’s strategic review to divest its Australian properties, are still ongoing and proceeds from these activities could potentially be utilized to strengthen its balance sheet.
Recommendation
Maintain FY08 and FY09 DPU estimates of 6.6cts and 6.7cts, translating to FY08-FY09F yields of c8%. Our price target of $1.23 offers potential 45% upside. However, we believe the share price is likely to be re-rated only when it demonstrates successful execution of its growth strategies and provide better clarity on Allco REIT’s position following API and AFG’s restructuring activities.
Rickmers – DBS
DPU guidance raised
Story: RMT delivered 1Q08 results that were in line with our estimates. RMT also declared a DPU of 2.14 UScts (2.9 Scts). Separately, the EGM held yesterday approved RMT’s proposed acquisition of 13 vessels at a cost of US$1.3bn.
Point: RMT currently operates 10 vessels and has another 13 vessels slated for delivery from 19 May 2008 to 10 Sep 2010; raising its capacity by 220% from 40,910 TEUs to 131,560 TEUs. The charters are now locked in at average of 8.6 years and expire between 2014 to 2020.
Management indicated that debt financing would probably be utilized at least for the short term. Together with the US$45m of unutilized debt facilities, its new US$627.5m credit facility is sufficient to fund the US$636m capex for the nine vessels that will be delivered in FY08 and FY09. Against this backdrop, we expect RMT’s gearing to rise to 70% in FY09.
Taking a conservative stance, our forecast assumes that vessel deliveries for FY08 will be fully financed by debt, 50% of capex in FY09 and FY10 will be financed by debt and 50% via an equity fund raising exercise raising US$490m in total. With this, RMT’s gearing is estimated to stand at 56% in FY09.
Relevance: Management raised its DPU guidance from 2.14 UScts per quarter to 2.25 UScts from 2Q08 onwards. RMT is trading at attractive yields of 11% and 11.6% in FY08-09 and at a P/B of 0.8x.. For comparison, RMT’s closest comps in the US – Danaos and Seaspan – are offering lower yields of 7.1% and 7.5% on average for FY08-09 respectively and are trading at 2.4x P/B. Maintain Buy for RMT with an adjusted TP of S$1.55 pegged at a target return of 8.2%, the average that the US shipping trusts are trading at.
Rickmers – BT
Rickmers Q1 earnings beat forecast by 54%
Unitholders okay acquisition of another contracted fleet of 13 ships
RICKMERS Maritime seems to be riding a huge swell forward as it yesterday announced another set of good results for the first quarter.
The shipping business trust posted a first-quarter revenue of US$22.33 million, 14 per cent higher than projected, while net profit came in at US$8.39 million, beating its forecast by 54 per cent. This is the fourth successive quarter that it has outperformed forecasts since its listing.
Rickmers attributed the good performance for the three months to March 31 to early delivery of newbuildings, lower cost of lubricant oil and smooth operation of the fleet. The trust was registered at the end of March last year and listed in May that same year.
With healthy cash flow from operating activities of US$16.93 million for the first quarter, Rickmers is able to keep its distribution policy of making regular quarterly distributions of 2.14 US cents per unit for this quarter. Total distribution comes up to US$9.07 million.
‘We are extremely happy to have exceeded projections for yet another quarter and believe that this further testifies to the hallmark of our business – its resilience and stability. In terms of strategy, we will continue to make accretive acquisitions and strategically manage our fleet in order to significantly grow our earnings,’ said the CEO of trustee-manager Rickmers Trust Management (RTM), Thomas Preben Hansen.
There is even more good news in store. Unitholders yesterday also approved the acquisition of an additional contracted fleet of 13 ships.
This will enable Rickmers to increase distributions by 5 per cent from 2.14 US cents to 2.25 US cents in the second quarter. The payout will be made in the third quarter and on an annualised basis unitholders will get a distribution payout of nine US cents.
Funding for the new vessels will comprise a combination of debt, equity and available cash reserves, RTM said.
The trust has adequate debt financing in place to fund at least the first six of the new vessels without raising any equity, and will be able to fund about 75 per cent of the US$1.35 billion purchase price with debt, if necessary.
Rickmers also recently secured US$627.5 million in new credit facilities. In addition, unitholders also approved a mandate allowing the trust to raise up to US$650 million of equity, representing about 50 per cent of the purchase price of the new vessels.
However, taking into account Rickmers Maritime’s adequate debt financing and excess cash flow from operations, the new equity requirement could amount to less than US$300 million.
Thus, the trust may consider a relatively small equity raising next year, with the majority of new equity to be issued for the acquisition taking place only in 2010 when the four largest vessels are due to be delivered, RTM said.
KREIT – BT
K-Reit’s free-float falls below 25% after rights issue
But number of free-float units more than doubles
K-REIT Asia’s free float of units will fall to 24.9 per cent from 27.1 per cent following the subscription by the Keppel Group for rights units not taken up by minority shareholders.
The trust’s rights issue of 396.9 million units priced at $1.39 per unit – which was 96.3 per cent subscribed, inclusive of excess rights applications – became fully subscribed after Keppel Corp and Keppel Land mopped up 14.9 million rights units, or 3.7 per cent of the issue, not taken up by minority shareholders.
While the free-float percentage will decline following the rights issue, the absolute number of free-float units will more than double from 67.7 million units to 161.2 million units.
Of the 14.9 million units, Keppel Corp took up 6.3 million units and Keppel Land 8.6 million units in line with their undertakings.
The rights issue will leave Keppel Land with 43.6 per cent of K-Reit’s enlarged equity base of 647.2 million units, and Keppel Corp will control 31.5 per cent. Prior to the rights issue, Keppel Land held 42.6 per cent of K-Reit’s total 250.2 million units, while Keppel Corp had 30.3 per cent.
K-Reit’s rights issue, which closed on April 25, will raise gross proceeds of about $551.7 million that will partly refinance the $942 million bridging loan K-Reit has taken from Keppel Corp to finance the trust’s acquisition of a one-third interest in One Raffles Quay. K-Reit bought the stake in One Raffles Quay from Keppel Land last year.
The $941.5 million acquisition price for the new Grade A office development works out to $2,109 per square foot (psf) of net lettable area. Stripping out income support of up to $103.4 million provided by seller Keppel Land through 2011 to K-Reit Asia reflects a lower net purchase price of $1,877 psf.
In a release yesterday, K-Reit said that based on gross proceeds of about $551.7 million from the rights issue, the trust’s aggregate leverage will be reduced from 53.9 per cent to 27.7 per cent and create for K-Reit about $679.8 million funding capacity based on 60 per cent leverage limit.
In late March, the trust manager’s CEO, Tan Swee Yiow, said in an interview with BT that management will look at a variety of options, including convertible bonds, commercial mortgage-backed securities and straight debt, to raise balance funds needed to repay the bridging loan.
K-Reit said yesterday the rights units will be listed on the Singapore Exchange from 9am on May 8. On the stock market yesterday, K-Reit ended six cents lower at $1.44.