Author: tfwee
CCT – UOBKH
Renew long-term lease with HSBC
CapitaCommercial Trust (CCT) has entered into a 7-year renewal lease agreement commencing 30 Apr 2012 (after expiry of existing lease) and expiring on 29 Apr 2019 for total contract value of S$143.1m. The lease agreement involves capex of S$7m to be incurred by CCT for improvement work on HSBC Building, which is expected to commence in late-2008. We estimate that the contract value of S$143.1m represents average rental of S$8.50psf pm, much higher than existing passing rent of S$3.63psf pm from HSBC Building. HSBC will bear most property operating expenses such as maintenance, utilities and property tax for HSBC Building. We view the renewed contract as a positive development although HSBC Building contributes only 3.1% of revenue in 1Q08.
Allco – SGX
Allco REIT appoints sales agents for its Australian properties
of Allco Commercial Real Estate Investment Trust (“Allco REIT”) (SGX: ALLC) today announced that sales agents have been formally appointed to market the public sale of Allco REIT’s interests in Central Park, Perth and Centrelink Headquarters, Canberra (“Australian Properties”).
Central Park, Perth
CB Richard Ellis (C) Pty Limited (“CBRE”) and Jones Lang LaSalle (WA) Pty Limited (“JLL”) have been appointed to sell Allco REIT’s 50.0% indirect interest in Central Park, one of Australia’s premier office towers.
Centrelink Headquarters, Canberra
Also being offered to the market is Centrelink Headquarters in Canberra, which is jointly owned by Allco REIT and Record Realty.
Sale Process
Allco REIT has not yet agreed any terms or entered into any binding arrangements with respect to the sale of the Australian Properties. The terms on which the Australian Properties will be divested will be recommended by the Manager on the basis of achieving the best possible outcome for holders of Allco REIT units (“Unitholders”) and will be subject to all Singapore regulatory requirements, including compliance with the Listing Manual issued by Singapore Exchange Securities Trading Limited (“SGX-ST”) and the Property Funds Guidelines at Appendix 2 to the Code on Collective Investment Schemes issued by the Monetary Authority of Singapore.
Mr Nicholas McGrath, Chief Executive Officer and Managing Director of the Manager said “I am very pleased to appoint a highly skilled and knowledgeable team to assist with the orderly sale process of these high quality assets with a view to achieving the best possible outcome for Unitholders of Allco REIT. Appointment of agents for the divestment of our Australian Properties is the first step in implementing the strategic focus of Allco REIT for 2008: redeployment of capital into Asia.”
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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.