Month: July 2008
AllCo – SGX
Frasers Centrepoint Limited to acquire 17.7% of Allco REIT and 100% of Allco REIT’s manager
Acquisition adds S$2 billion portfolio of commercial assets under management to FCL
Singapore – July 8, 2008 – Frasers Centrepoint Limited (“FCL”) today announced that it will acquire a 17.7 per cent stake in SGX-ST listed Allco Commercial Real Estate Investment Trust (“Allco REIT”), and 100 per cent of the REIT’s manager, Allco (Singapore) Limited from Allco Finance Group for S$180 million.
FCL will obtain 125.6 million units of Allco REIT at a unit price of $0.83, which is a discount of 42.4% against Allco REIT’s net asset value per unit and a premium of 16.9% against its last traded price. Allco REIT has a market capitalisation of S$504 million, with S$2 billion of commercial properties located in Singapore, Australia and Japan.
FCL Chief Executive Officer, Mr Lim Ee Seng said: “Current Allco REIT unit holders will benefit from tapping into the professional management expertise, regional footprint and resources of one of Singapore’s largest property companies.”
The Singapore Exchange had recently on 25 June 2008 issued an eligibility-to-list to FCL for the listing of its planned commercial REIT. With the acquisition of the Allco REIT units and the manager, FCL will terminate the listing plans and intends to offer the current portfolio of commercial assets as a potential pipeline for the acquired Allco REIT “Upon completion of the transaction, Allco REIT will be renamed Frasers Commercial Trust, and it will be the vehicle through which FCL will further its commercial property activities,” said Mr Lim.
“We have clear plans to bolster and strengthen the financial position of Allco REIT. FCL, as part of the Fraser & Neave Group, will be able to assist Allco REIT in negotiating the refinancing of its existing loans, which will bring clear benefits to Allco REIT’s unit holders.” said Mr Lim.
Under FCL’s management, Allco REIT is set to grow by leveraging on a ready pipeline of assets comprising S$700 million worth of quality commercial assets owned by FCL in Singapore.
“We have outlined a plan to establish three REITs in the retail, commercial and hospitality sectors. Frasers Centrepoint Trust, our Retail REIT was listed in 2006. This acquisition will deliver on our plan for a Commercial REIT. We intend to list our third REIT for our serviced residence assets in the next two to three years, subject to prevailing market conditions,” said Mr Lim.
Source : SGX
AllCo – SGX
SALE OF MANAGER OF ALLCO COMMERCIAL REAL ESTATE INVESTMENT TRUST
UPDATE – INCOME SUPPORT ARRANGEMENTS IN RESPECT OF CENTRAL PARK, PERTH
ASSET VALUATIONS
Sale of Manager of Allco Commercial Real Estate Investment Trust
Singapore, 8 July 2008 – Allco (Singapore) Limited (“Manager” or “Allco Singapore”), the manager of Allco Commercial Real Estate Investment Trust (“Allco REIT”) announces that Allco Finance Group Limited and two of its indirect wholly-owned subsidiaries, Allco Singapore Holdings Limited and Allco Singapore Investments Pte. Ltd. (“Allco Group”), have entered into a Sale and Purchase Agreement dated 8 July 2008 (“Agreement”) with Frasers Centrepoint Limited (“FCL”).
Pursuant to the terms of the Agreement, Allco Group has agreed to sell to FCL for a total consideration of S$180 million:
(a) all of the issued ordinary and preference shares in Allco Singapore (for a consideration of S$75,709,405.23);
(b) its approximately 17.7% interest in Allco REIT (125,651,319 Allco REIT units (“Units”) for a consideration of S$104,290,594.77 or S$0.83 per Unit),
(the “Sale”).
The price of S$0.83 per Unit represents:
(1) a discount of 42.3% to the unaudited net asset value of Allco REIT per Unit of S$1.44 as at 31 March 2008; and
(2) a premium of 16.9% to the closing price per Unit of S$0.71 traded on the Singapore Exchange Securities Trading Limited (“SGX-ST”) on 7 July 2008, the last trading day immediately before this announcement.
The effect of the Sale is that FCL, whose ultimate holding company is SGX-listed Fraser and Neave, Limited, will, on completion, control the manager of Allco REIT.
Subject to the matters referred to below, completion of the Sale is expected to take place by 6 August 2008. A further announcement will be made upon completion of the Sale.
Completion of the Sale is subject to certain conditions precedent being fulfilled or waived on or prior to 30 September 2008 (or such later date as FCL and Allco Group may agree), including:
(a) the Monetary Authority of Singapore not raising an objection to FCL acquiring Allco Singapore;
(b) receipt of Australian Foreign Investment Review Board approval for (or no-objection to) the Sale;
(c) waiver of certain covenants under Allco REIT’s financial indebtedness to Commonwealth Bank of Australia;
(d) no breach of certain representations, warranties and undertakings given by Allco Group under the Agreement; and
(e) no occurrence of certain events which have a material adverse effect on Allco REIT or Allco Singapore and their respective subsidiaries.
Update – Income Support Arrangements in respect of Central Park, Perth
As announced on 6 May 2008, a deed of guarantee and indemnity (“Guarantee”) was entered into on 5 May 2008 by Allco Finance Group Limited in favour of APF Management Pty Limited as trustee of Central Park Landholding Trust, under which Allco Finance Group Limited agreed to guarantee payment of the income support obligations arising under an Income Support Deed referred to in an announcement on 9 March 2008.
The liability of Allco Finance Group Limited to make payments under the Guarantee will terminate when it ceases to hold a shareholding interest of at least 50% in the manager of Allco REIT. This will occur on completion of the Sale. Following that date, any recovery of income support in respect of Central Park, Perth, will be restricted to what can be recovered in the administration of Allco Principals Investments Pty Limited (Receiver and Manager appointed) (Administrator appointed).
Asset Valuations
Cosmo Plaza, Osaka
An independent valuation of Cosmo Plaza, Osaka, has been completed1. The property has been valued at JPY 5.998 billion2, which is 8.7% below the previous valuation of JPY6.57 billion as at 30 May 2007.
The valuation was conducted by K. K. Halifax Associates.
Centrelink Headquarters, Canberra
An independent valuation of Centrelink Headquarters, Canberra, has been completed3. The property has been valued at A$187.5 million4, which is 13.8% below the average of the previous valuations of A$217.5 million obtained in May 2007.
The valuation was conducted by Colliers International Consultancy and Valuation Pty Limited.
Source : SGX
FSL – DBS
Market conditions suited for lowerrisk investments
First Ship Lease Trust (FSLT) is a business trust formed to own and lease vessels on an exclusively bareboat charter basis. Its policy is to distribute 100% of available cashflows which are tax-exempt to all classes of investors.
Dividend paying with growth. FSLT has grown its fleet since IPO – from 13 vessels to 23 by end Oct 08. Its portfolio is diversified across eight customers and five shipping subsectors. Regular and stable distributions is the basis for the trust and growth will come from accretive acquisitions. YTD, FSLT has already acquired vessels worth US$350m (incl the third Yang Ming vessel), ahead of its acquisition target of US$300m for 2008.
Positioned to exploit opportunities. FSLT is well positioned in the global ship finance market, estimated at US$75bn pa. There is no conflict with potential lessees as Trustee-Manager, FSLTM, does not engage in ship operating activities. Shipping cycle volatility is mitigated by its staggered lease expiry profile with the earliest maturity in 2014, an average remaining lease period of approximately 9.2 years and a diversified vessel portfolio as sub-sector shipping cycles are usually countercyclical to each other. FSLT signs bareboat leases rather than time charters, and is not exposed to operational costs (such as fuel, crew-related expenses) and risks.
Risks. Its single largest risk is the credit risk associated with its lessee base. This is minimized as all vessels are leased to international operators and payable monthly. Near term opportunities for acquisitions is probably limited given that FSLT has marginally exceeded its targeted capital ratio and the weak equity markets.
Initiate with a Buy, TP S$1.65. We believe that FSLT’s yield spread versus the US peers is unjustified. FSLT is offering a yield of 12.7% and 13.7% in FY08-09 and is trading at a P/B of 1.1x. For comparison, US peers are trading at yields of 9.1% and 9.5% for FY08-09 respectively; and at a P/B of 3.1x. TP of S$1.65 pegged at a target return of 9.4%, the average of the US and Singapore peers.
HWT – DBS
More wind in the sails?
Story: We recently visited some of Hyflux Water Trust’s (“HWT”) water and wastewater assets in China, including one of the 9 plants offered by sponsor Hyflux to HWT for acquisition as part of the ROFOAR pipeline.
Point: We came back reassured about the Trust’s ability to manage its assets and the inherent growth potential of its existing portfolio. HWT leverages on the experience and track record of parent Hyflux for all aspects of day-to-day operations and administration. Being located out of large industrial parks still in the early stages of development, HWT has a distinct advantage as it allows them to be a part of the industrial growth story being actively promoted by the local governments. Along with this potential of organic expansion, Hyflux has offered HWT a portfolio of 9 assets with a combined capacity of 290,000 cu m/day (representing about 65% of existing capacity) for potential acquisition, at an offer price of S$180m. HWT currently has zero gearing and debt financing should not be a problem, with an US$60m line already in place. Though the offer price looks to be on the higher side at first glance, at 1.6x P/BV (as against valuation of IPO portfolio at 1.3x P/BV), we believe that the acquisition should be yield-accretive from FY11 onwards. HWT would be taking its decision on the offer by 4Q08.
Relevance: We have revised our assumptions for water tariffs and utilisation rates for some of the plants in the existing portfolio based on information gathered off-theground. Hence, our DPU forecasts for FY08 and FY09 consequently stand reduced by 6% and 3% respectively. However, our DDM-backed target price remains unchanged at S$0.90 and we continue to maintain BUY on the stock. Current dividend yield is attractive at 7.0% for FY08 and 8.3% for FY09. Expect a re-rating if and when HWT decides to acquire the Hyflux assets on offer.
FSL – OCBC
Downgrade to HOLD
FSLT has achieved our fair value estimate. First Ship Lease Trust (FSLT) has done well since our last report dated 25th April, up 12% despite broader market weakness. This recent recovery is on account of an increase in DPU – we are projecting FY08 DPU of 11.6 US cents (+27% YoY) and FY09 DPU of 12.53 US cents (+8% YoY). FSLT is offering a high 12.5% FY08 DPU yield1, a whopping 900 basis points premium over the 10-year Singapore government bond. In contrast, the S-REITs are trading on average at 400 bps over the 10-yr rate.
Acquisition spree in 1H08. The DPU spurt we estimate for FY08 and FY09 has been achieved through a larger than expected acquisition spree. In 1H08, First Ship Lease Trust (FSLT) announced the acquisition of two crude oil tankers and three containerships worth US$350m. Four of the five vessels have already been delivered. Financing for the fifth vessel, a US$70m containership, with an expected delivery in end October, has yet to be arranged. We have updated our estimates to reflect the higher than expected capex at a higher finance cost. We estimate asset yields to be lower than previous buys however, making this round of acquisitions less accretive.
Reaching limits to gearing. We estimate that with the completion of this round of acquisitions, FSLT will have overshot a sustainable debt-toequity level of 1x by the end of this year. We believe there is reduced prospect for further gearing at current equity levels. Unlike S-REITs, shipping trusts do not see positive rent reversions in the near term. DPU is therefore capped at FY09 levels. An equity infusion to continue growing DPU could be dilutive as FSLT continues to trade at prohibitively high yields.
Downgrade to HOLD. We remind investors that because of its aggressive payout strategy, FSLT’s high yield consists of both a return on capital (income) and a return of capital (depreciation). It is consequently important to look at both yield and net asset value, which has been falling in tandem with DPU growth (see chart). FSLT is currently trading at S$1.23, 2.5% above our fair value estimate and FSLT’s 1Q08 NAV of 88 US cents. As it is now trading close to our fair value of S$1.20, and has outperformed with a 12% gain over a 2-month period in a slowing market, we downgrade FSLT to HOLD.