Month: May 2008
KREIT – UOBKH
Gearing reduced after completion of rights issue
K-REIT received valid acceptances for a total of 382m rights units representing take-up rate of 96.3% at the close of the rights issue on 25 Apr 08. Keppel Corporation (6.3m) and Keppel Land (8.6m) has taken up the remaining 14.9m rights units that had not been subscribed in accordance with their irrevocable undertaking. Gross proceeds of S$551.7m from the rights issue will be utilised to refinance bridging loan taken for the acquisition of One Raffles Quay. Management estimated that this would reduce gearing from 53.9% to 27.7%.
Keppel Corporation will have an interest in 486m units or 75.1% stake in K-REIT, inclusive of units with Keppel Land. Keppel Land owns 282.23 units or 43.6% stake. The free float will be 24.9% after the rights issue. Liquidity should improve as free float has increase from 67.7m shares to 161.2m shares. Market capitalisation has grown to S$932m using yesterday’s closing price of S$1.44.
The rights units will start trading on Thursday, 8 May 08.
Rickmers – UOBKH
1Q08 Results better than expected, management to raise quarterly distribution from 2Q08 by 5%
Rickmers Maritime (RMT) announced a 13.6% qoq increase in charter income to US$22.3m, this was slightly better than expected, due to the early delivery of two vessels, the CMA CGM Jade and CMA CGM Onyx. Earnings for the period however, declined by 10.5% qoq to US$8.4m. This can be attributable mainly to the absence of negative goodwill on business combination (non-cash item) as well as higher transaction fees relating to the issue of new units as well as costs incurred for the upcoming acquisition of 13 containerships. Overall, results were better than expected.
Management to raise quarterly distribution from 2Q08 by 5% to 2.25 US cents. RMT will be increasing its distribution in 2Q08 by 5% to 2.25 US cents. This additional distribution will be funded by additional income from the new vessels which will join RMT’s fleet this year. This implies a full year payout of 8.89 US cents which implies an attractive distribution yield of 10.9% which is in line with our expectations.
Maintain BUY: Target price unchanged at US$1.19 (S$1.61). We continue to like RMT given its vessels are chartered out on long-term fixed time charters, with an average duration of seven years. RMT focuses on only the top liner companies in the world and its customers include Maersk Lines, CMA CGM, Italia Marittima, Hanjin Shipping and Mitsuit O.S.K. Lines. RMT is trading at an attractive distribution yield of 10.9%. We reiterate our BUY recommendation on RMT, with a target price of US$1.19 (S$1.61).
AREIT – UOBKH
4QFY08: Benefitting From Spillover Demand From CBD
A-REIT reported gross revenue of S$84.4m in 4QFY08, an increase of 13.9% yoy. Overall occupancy reached 98.4% as at Mar 08, compared with 96.6% last year. AREIT announced a DPU of 3.69 cents for 4QFY08, an increase of 11.8% yoy. This represents an annualised yield of 5.7% and will be paid on 30 May 08.
Positive rental reversion for Science & Business Park and Hi-Tech Industrial. A-REIT benefits from the shortage of office space within the Central Business District (CBD). This has forced many companies to relocate non-client-facing backroom and data centre operations to suburban locations such as Alexandra Technopark and Changi Business Park (CBP). There is also positive impact from an inflow of multinational companies expanding in Singapore. A-REIT signed renewed and new leases for a total net lettable area (NLA) of 784,925sf during the quarter, representing 9.7% of NLA for multi-tenanted buildings. Renewal rates for Science & Business Park and Hi- Tech Industrial were S$3.76 and S$3.10psf pm, 68.8% and 49.8% higher on a yoy basis.
A well-diversified portfolio. A-REIT had a portfolio of 84 properties and total assets of S$4.2b as at Mar 08. The weighted average lease to expiry is 5.9 years. A-REIT has a quality and well-diversified tenant base of over 790 international and local companies. The top 10 tenants account for 27.9% of portfolio income. The largest tenant, Singapore Telecommunications, accounts for only 6.5% of portfolio income. A-REIT’s weighted average funding cost is 3.1% due to its corporate rating of A3 and consistent track record. It will be concluding a three-year S$200m transferable loan facility, after which the earliest date for refinancing is Aug 09.
Maintain BUY. A-REIT provides FY08 distribution yield of 5.81%, a healthy spread of 3.46% over 10-year Singapore government bond yield at 2.35%. Our target price is S$3.00 based on the two-stage dividend discount model.
Suntec – OCBC
A solid second quarter
Solid second quarter. Suntec REIT (Suntec) reported a 34.2% YoY increase in 2Q distributable income to S$37.6m. The REIT will pay out 2.5185 cents DPU, up 28.2% YoY and more than 10% higher QoQ. The strong DPU exceeded both Suntec’s own forecasts and our estimates. We have now increased our expectations for full-year DPU by 5% to 9.6 S cents. Our 2H08 and 1H09 estimates together imply an attractive 6.5% distribution yield for the next 12 months.
Growth drivers. The biggest highlight of the story was the significant control on expenses in 2Q. NPI margins increased from 68.8% in 1Q08 to a staggering 76% in 2Q08. This was primarily due to a 47% decline in property taxes QoQ. Revenue, meanwhile, was boosted by the Suntec City office towers. About 152,000 sf of office space came up for renewal in 2Q, and this accounted for the bulk of the total estimated leases up for renewal in FY08. Renewal rates for these spaces rose meteorically from below S$5 psf pm to S$11-13.50 psf pm. The REIT’s office strata shopping spree – it has acquired about 28,000 sf over December and January – added another boost. About 5% of Suntec’s retail portfolio also enjoyed positive rental reversions. One Raffles Quay (ORQ) made its first full-quarter contribution as well, earning S$2m in net profit.
What next? Suntec is nearing peak performance on its current portfolio. Occupancy, its first avenue for organic growth, is maxed out at 99.8% (office) and 99.4% (retail). Growth will be driven by rent reversions – about 44% of the office portfolio ex-ORQ is up for renewal in FY09. We expect office rentals to peak by 1H09 and hold, but there is still significant upside for its properties earning less than S$5 psf pm. ORQ rent reversions will start gaining traction only in FY11. In our view, the next wave of mediumterm growth will be external, including more office strata buybacks in Suntec City and the planned addition to Park Mall.
Compelling yield. While Suntec is consistently outperforming as a business, it is operating in a far more muted S-REIT environment. The property market on the whole remains spooked by questions about the health and prospects of both the local and global economy. This caution and skepticism have filtered down to S-REIT prices, presenting a great yield opportunity. We continue to like Suntec for repeatedly bringing home the bacon with a quality 6.5% yield. Maintain BUY with a S$1.71 fair value.