Month: November 2008
AREIT – BT
Ascendas-Reit allays fears over TT International
Tenant has placed security deposit of 11.4 months rent, it says
ASCENDAS-REIT (A-Reit) has come out to reassure investors that its tenants are not in breach of rental obligations.
Reit manager Ascendas Funds Management said yesterday that tenant TT International placed a security deposit equivalent to 11.4 months’ rent, or $6.86 million. ‘If the tenant should default on its rental or lease obligations, this security deposit could be used to offset any potential negative impact on A-Reit’s financial results in the near term,’ it said.
The announcement was made after TT International said recently it was in default on certain fixed-rate notes and would seek a halt on repaying money owed to its principal bankers and all unsecured creditors.
TT International Tradepark (TTIT), a subsidiary of TT International, rents a six-storey warehouse and adjacent 10-storey office building from A-Reit, near Jurong East MRT.
With a net lettable area of 42,765 square metres, the property accounts for 2.3 per cent of A-Reit’s total net lettable space.
TTIT has a 10-year lease from March 2004 and accounted for 1.8 per cent of A-Reit’s total gross monthly revenue at Sept 30. TTIT’s current rent is $1.30 per sq ft per month.
The real estate investment trust manager said: ‘At this juncture, TTIT is not in arrears on its rental obligation.’
A-Reit has 88 properties in Singapore. Fifty-two of these are sale-and-leaseback properties, which A-Reit says have security deposits of 8-15 months. The weighted average time to expiry for the 52 properties is 7.8 years and none of them is up for renewal until the second half of FY2009/10.
An A-Reit spokeswoman said 80 per cent of A-Reit’s total rental income is paid by Giro, so defaults if any can be managed quickly. She said this is not an issue at present.
A-Reit has more than 860 international and local companies as tenants. Major tenants include SingTel, C&P Logistics, Siemens, TT International, Honeywell, Zuellig Pharma, LFD (Singapore), OSIM International, Venture Corporation, Federal Express, Freight Links Express, Johnson & Johnson, RSH, Infineon Technologies, Procter & Gamble and Hyflux.
HWT – DBS
Decent set of results
Story: Excluding an unrealized forex gain of S$1.76m (owing to the appreciation of RMB against SGD), 3Q08 results were largely in line with our expectations, with distributable cash generation of 1.33 Scents –accounting for 48% of 2H08 projected DPU. Management remains confident of meeting the 4.88 Scents DPU payout target for FY09 (after waiver by sponsor Hyflux).
Point: 3Q08 revenues declined 17% q-o-q to S$13.9m, owing to lower construction revenue of S$10m compared to S$13.3m in 2Q08, as fewer project milestones were reached. The Beichen and Zunhua projects have been delayed and will now be completed in 4Q08 and 1H09, respectively. Tariff receipts grew 23% q-o-q to S$4.7m, though volumes grew by only 1% and utilization rates actually fell to 59% from 63% in 2Q as new plants came into play. Thus, much of the growth in tariff receipts can be attributed to tariff revisions negotiated at existing plants. Operating costs were again well managed, and operating margins held up at 60%, compared to 58% in 1H08 and higher than our initial FY08 projection of 45%. Cash balances at the end of the period stood at S$37.5m, down S$13m over the period owing to payment for construction costs and 1H08 dividend payout of S$4.45m.
Relevance: We revise our DPU forecasts for FY08 and FY09 up by 4.5% and 13%, respectively to account for the better visibility in sustenance of margins. The proposed first phase of asset acquisition from Hyflux will bolster the DPU from FY10 onwards. Maintain BUY, at a revised target price of S$0.62, based on our blended valuation methodology. Key risks include delays in future acquisitions if the credit markets remain tight, and a slower ramp up in utilization rates in industrial areas in the wake of a perceived slowdown in export oriented industries in China.
FCOT – Kim Eng
A Catch-22 Situation for F&N (& a possible solution)
Key points:
♦ FCOT is the cheapest REIT in the S-REIT space on P/Book basis.
♦ Implicit backing of F&N reduces re-financing risk.
♦ A potential privatization candidate for F&N, we see a possible takeout price at $0.42, implying 82% upside.
Analysis:
1) Back in July 2008, F&N bought a 17.7% stake in Allco Commercial REIT (Allco) and 100% of Allco’s REIT manager, paying an aggregate purchase price of S$180m.
2) The S$104m price tag for 17.7% in Allco translated to a price of $0.83/unit and was at a 42% discount to Allco’s Net Asset Value, valuing the whole REIT at S$588m.
3) F&N’s game-plan was to use Allco REIT as its commercial REIT vehicle and eventually inject its pipeline assets (Alexandra Point, Alexandra Technopark and Valley Point) into Allco. Allco was subsequently renamed Fraser Commercial Trust (FCOT).
4) Today, amid a full blown financial crisis, and company-specific refinancing issues, FCOT’s share price has plunged to $0.23, implying P/NAV of 0.18x and a market capitalization of $164m. Distribution yield is in excess of 20%. F&N is currently sitting on a paper loss of $75m based on the last trade price.
5) In the short term, FCOT faced the daunting task of re-financing S$460m of short termT loan. Given the implicit backing of F&N, we believe the company would be able to resolve this, abeit with a higher cost of funds.
6) F&N currently faces a challenging situation: given the huge discount to Net Asset Value (78%) and high distribution yield, any asset acquisition would not be accretive and also involve massive unit earnings dilution. The designated pipeline assets for the REIT would have to be deferred infinitely in the current environment.
7) One potential solution would be for F&N to privatize the FCOT to resolve the deadlock. Post privatisation, F&N would have greater flexibility to carry out an asset restructuring exercise, getting rid of under-performing assets and re-packaging the REIT for a future re-listing when market conditions improve. Under current market conditions, a privatization offer would be a cheap way of acquiring physical assets.
8) While we are cautious of industrial REITs in general given a supply glut in a slowing economy and potential tenancy risk, we believe FCOT’s low valuation has priced in much of the negatives and has limited downside risk at this level. We also see it as a potential M&A target.
9) Assuming a takeout price of 0.35x P/Book, that will translate to a target of $0.42, 82% upside from current level. Buy.
MI-Reit – BT
MACARTHURCOOK Industrial Reit (MI-Reit) yesterday posted net property income of $9.3 million for its second quarter ended Sept 30, 2008 – up 58 per cent from a year earlier. The improvement was largely due to rental income from nine properties MI-Reit acquired in the past financial year.
Distribution to unitholders rose 27 per cent quarter on quarter to $6.1 million in Q2. This translates to a 26 per cent increase in distribution per unit (DPU) to 2.35 cents.
Taking DPU in Q1 and Q2 into account, MI-Reit’s annualised yield is 19.2 per cent, based on its closing unit price of 49 cents on Sept 30.
‘Given the rising worries over a global recession and fears in credit markets that have intensified, our immediate priority is to actively manage MI-Reit’s assets to maintain our high tenant retention and occupancy levels,’ said Craig Dunstan, CEO and executive director of MI-Reit manager MacarthurCook Investment Managers (Asia).
All 21 properties in MI-Reit’s portfolio were fully leased at Sept 30. Only 2.7 per cent of its rental income will be subject to lease expiry in FY2009 and FY2010.
Tenant diversification improved. At Sept 30, no single tenant accounted for more than 20.3 per cent of rental income.
Deteriorating market conditions and refinancing risks facing MI-Reit led Moody’s Investors Service to place its Baa3 corporate family rating on review for a possible downgrade last month.
At Sept 30, MI-Reit had an aggregate leverage ratio of 39.6 per cent. Its medium-term target gearing is in the range of 40-45 per cent.
‘The manager is currently advanced in negotiations in relation to a new facility that will refinance an existing facility of $220.8 million due in April 2009 and also to provide funding for the settlement of Plot 4A, International Business Park in December 2009,’ said MI-Reit.
MI-Reit signed a deal for the business park in August last year. The Reit did not announce any acquisitions in Q2.
‘In the near term, organic growth in the portfolio will drive returns,’ said Mr Dunstan. ‘However, we expect to resume our active acquisition growth strategy once capital market conditions improve.’
For the rest of the financial year, the MI-Reit manager expects returns to be in line with recent performance.
Units of MI-Reit closed 0.5 cents higher at 39 cents yesterday.