Author: tfwee
AREIT – BT
A-Reit buyer of Creative’s HQ building in Jurong East
ASCENDAS Real Estate Investment Trust (A-Reit) has emerged as the buyer of Creative Technology’s headquarters building at 31 International Business Park in Jurong East. The price will be $246.8 million.
Creative said in March that it had agreed to sell and lease back the property but did not disclose the buyer’s identity. The deal is subject to approval by Creative shareholders and JTC Corp.
On completion of the sale, a Creative subsidiary will lease the property for five years, with options to renew for a further three plus two years.
A-Reit’s manager said the average yield for the initial five-year lease will be 6.24 per cent. Additional rent is payable in the third and fifth years of the lease if the cumulative increase in Singapore’s Consumer Price Index exceeds 5 per cent.
Had A-Reit bought, held and operated the property since the start of the current financial year, the proposed acquisition would have boosted its distributable income per unit by 0.07 cent.
A-Reit’s manager will receive a $2.5 million acquisition fee. Other transaction costs are estimated at $3.7 million.
The property, valued by CB Richard Ellis at $246.8 million, is a part five-storey, part seven-storey and part eight-storey tower with basement parking.
It has an auditorium and a 2,000-capacity outdoor amphitheatre and is on a 265,739-sq-ft site with 30 + 30 year leasehold tenure from Dec 16, 1994.
A-Reit plans to fund the acquisition by debt and/or equity. On the stock market yesterday, the counter ended 14 cents lower at $2.50.
HWT – BT
Hyflux Water Trust posts $1.1m Q1 net
HYFLUX Water Trust (HWT), a pure-play global water business trust listed on the Singapore Exchange (SGX) last December, yesterday reported net earnings of $1.1 million for the first quarter ended March 31.
This came on the back of total revenue of $14.4 million, which represented 28 per cent of the trust’s FY2008 revenue projection. HWT announced a distribution per unit (DPU) of 0.87 cent for Q1. The trust expects to meet the forecast DPU of 2.09 cents for the first half. The forecast DPU for FY2008 is 4.88 cents. Earnings per unit for the quarter stood at 0.37 cent.
Eight plants in HWT’s portfolio of 13 achieved commercial operation during the quarter. Utilisation rates stood at around 51 per cent and the trust expects the rates to increase over time.
HWT has no gearing currently. ‘The global credit crunch, slowdown in the US economy and increasing uncertainties in the financial markets have seen tightening of credit from financial institutions and increasing cost of raising funds,’ said the trust in its financial statements.
Nevertheless, the trust has the ability to draw down on a US$66 million credit facility to fund future acquisitions.
According to Hyflux Water Trust Management CEO Saud Siddique, ‘the fundamentals of the water industry remain very positive, particularly in China’.
Mr Siddique added that the pipeline of projects under the ROFOAR (right of first refusal and right to match) arrangement with Hyflux Ltd positions the trust for further growth.
According to HWT’s website, Hyflux Ltd has granted Hyflux Water Trust Management ROFOAR on all water-related infrastructure assets owned by the group.
The ROFOAR pipeline assets saw a 45 per cent growth from last December to the end of April this year, from 760,000 to 1,105,000 cubic metres per day.
HWT shares ended trading yesterday at 75 cents, one cent down. DBS Vickers had issued a ‘buy’ call on the counter on April 4, with a target price of 78 cents.
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.