Author: tfwee
AllCo – BT
Allco cancels US$104m unit offer
SINGAPORE – Allco Commercial Real Estate Investment Trust, a property trust based on Singapore and Australian assets, said on Wednesday it has cancelled a planned preferential offering that would have raised up to $150 million (US$104 million) due to poor market conditions.
The trust said it was not proceeding with its plan, announced on Nov 16, to sell up to 175.2 million units to existing unitholders under a one-for-four preferential offer.
‘There is no pressing need for Allco Reit to be raising capital at this time,’ Nicholas McGrath, chief executive officer of Allco Reit’s manager, said in a statement.
Rising risk aversion has turned off investors from yield-driven property and asset trusts, sparking the cancellation of two major initial public offers in Singapore worth a combined US$800 million earlier this month.
An aircraft lease backed by a unit of General Electric and a real estate investment trust by Japanese developer Asia Pacific Land Group postponed their Singapore IPOs after a disastrous market debut by Saizen Reit, whose units fell 13 per cent on its Nov 2 debut. — REUTERS
PST – UOBKH
PST (PST SP)
Share Price: US$0.41
Target Price: US$0.50
PST has announced that it is acquiring from its sponsor Pacific International Lines (PIL) two new 1,800 TEU container vessels at US$43m each. The acquisitions are pursuant to a right of first refusal agreement entered into between PST and PIL dated 25 April 2006 and will increase PST’s fleet by 16% from 22,364 TEUs to 25,964 TEUs. The new vessels are currently being built by Dalian Shipbuilding Industry Co. Simultaneously, PST has entered into bareboat charters with PIL. The charter hire per vessel has been agreed at a fixed rate of US$11,550 per day for eight years commencing from the date of completion of the acquisitions.
The vessels have been valued by Howe Robinson Marine Evaluations at US$43m, as at 23 Oct 07 on a charter-free basis. The vessels are scheduled to be delivered by Dalian Shipbuilding to PST in Mar 08 and May 08 respectively. PST expects the acquisitions to be accretive to PST’s distributable cash flow once they are delivered and in operation. The vessels will increase PST’s current aggregate contracted revenue by 15.7 % to approximately US$ 61.9m per annum. The acquisitions will also increase PST’s current contracted fleet from 10 to 12 vessels.
PST intends to fund the acquisitions wholly with debt finance although the final financing structure will be subject to further evaluation by the trustee manager. In determining the appropriate financing for PST in respect of the acquisitions, the Trustee-Manager will take into account amongst others prevailing market conditions and the relative costs of financing with a view to arriving at an efficient capital structure for PST. There will be no acquisition fee payable to the Trustee-Manager in connection with the acquisitions.
We estimate the two vessels will contribute a gross charter income of US$4.2m per vessel. Net of trustee fees, the operating profit before funding cost is US$4.0m per vessel. This translates into a net asset yield of 9.4% (operating profit before funding). Assuming cost of debt at 6%, the accretion to PST’s distributable cash flow before debt repayment is 3.4% or a total US$2.9m for both vessels. This represents an increase of 16% on our FY09 projected distributable cash of US$17.9m for PST. The actual impact on distributable cash flow will depend on the debt repayment structure. If PST were to adopt the same debt structure of as the other two shipping trusts, Rickmers Maritime and FSL Trust (i.e. a balloon or bullet repayment structure with no or minimal debt repayment in the vessels’ initial years), the acquisitions will be significantly accretive to distributable cash. Among the three shipping trusts, PST is already the most conservative in repayment of debt related to the initial shipping fleet. It is currently repaying its debt over 10-12 years from IPO against its initial fleet’s remaining useful lifespan of 26 years from IPO.
Maintain BUY and our target price of US$0.50. PST currently trades at a net dividend yield of 10.4%.
HWT – UOBKH
Issue statistics:
Offer size: 165.0m units
Public Tranche – 30.0m units
Placement Tranche – 135.0m units
Price: S$0.78
NAV per Unit (post-IPO): S$0.73
Forecast DPU: 4.46 cents (FY08)
5.26 cents (FY09)
Market Cap (post-IPO): S$217.9m
Open: 24 Nov 2007
Close: 28 Nov 2007, 12.00noon
Trading: 3 Dec 2007, 2.00p.m. (on “ready” basis)
Lead Manager: JP Morgan
Overview
Hyflux Water Trust (HWT) is the first pure-play global water business trust to be listed on a securities exchange in Asia that provides investors with an opportunity to invest in water-related infrastructure assets (including, but not limited to, water treatment plants (“WTPs”), wastewater treatment plants (“WWTPs”), water recycling plants (“WRPs”), desalination plants (“DPs”) and water distribution companies) in the People’s Republic of China (“PRC”), India, the Middle East and North Africa region (“MENA”) and other high-growth markets globally.
The Trustee-Manager believes that the overall positive outlook on the global water sector, the strong market fundamentals of the PRC water sector, together with long-term, regular and predictable cash flows from a high quality Initial Portfolio, are several key highlights for investing in HWT.
The Trustee-Manager plans to capitalise on the synergistic business models of HWT and Hyflux Ltd (“Sponsor”), the sponsor of HWT, the continuing commitment of the Sponsor to HWT, and the extensive water-related infrastructure expertise and wide networking contacts of the Trustee- Manager to acquire water-related infrastructure assets from the Sponsor through the right of first offer, right of first refusal and right to match granted by the Sponsor (“ROFOAR”) and from third parties. It also plans to increase the distribution of HWT organically through an improvement in utilisation and from the “inbuilt” capacity expansion potential of the Initial Plants.
Upon completion of the Offering, HWT will acquire the entire issued share capital of Hyflux Utility Ltd (“HUL”) from SinoSpring Utility Ltd. (“SUL”), a subsidiary of the Sponsor. HUL owns the entire issued share capital of 11 special purpose companies (“SPCs”), with each SPC owning one or more water infrastructure assets in the form of a WTP, WWTP and/or a WRP. Immediately upon Listing, HWT will have 13 Plants, comprising three WTPs, eight WWTPs and two WRPs (“Initial Plants” and the business undertakings carried on through such Plants, “Initial Portfolio”).
Seven of the Plants have commenced commercial operations as at the date of HWT’s Prospectus (“Operating Plants”) and six of the Plants are expected to commence commercial operations by the end of FY2008 (“Completing Plants”). Each of the SPCs owning the Plants has entered into a long-term Concession Agreement with the relevant Administrative Authorities of between 20 to 30 years. In addition, Yangkou SPC (which owns a WTP) and Liaoyang SPC (which owns a WWTP with recycled water output) has each entered into a Water Supply Agreement with various users.
Please refer to the Prospectus for risk factors and other details of the IPO.
MI-REIT – BT
MI-Reit pays $29.2m for Japanese warehouse
It sees 20 per cent of portfolio in Japan, partner APJ will help manage, find assets
MACARTHURCOOK Industrial Reit (MI-Reit) is making its maiden foray into Japan, after purchasing a property there and forging an alliance with a Japanese asset management firm.
MI-Reit said that it will pay $29.2 million for the Asahi Ohmiya warehouse. The property was recently valued at this amount by independent property valuer CB Richard Ellis.
Located in Saitama, the property is a purpose-built, four-level warehouse with an ancillary three-storey office building, currently used as a distribution centre for pharmaceutical products.
MI-Reit also formed an alliance with Atlas Partners Japan (APJ), to which it will outsource the asset management of the property acquired.
APJ is a specialist in Japanese real estate fund and asset management for global institutional investors and its assets under management are worth more than US$740 million as at Oct 31.
In return, APJ will source for acquisition opportunities and provide asset management support for other properties acquired in Japan.
MI-Reit said that the Japanese real estate market will now be its ‘second most important market outside of Singapore’, even though it will continue to focus on growth within the Singapore market.
Over time, it expects 20 per cent of its portfolio to be located in Japan, while Singapore assets will take up 50 per cent. The rest is expected to be spread across other major Asian industrial property markets.
MI-Reit expects the acquisition to be completed next month, adding that it will be accretive to the trust’s distribution per unit (DPU).
The pro forma financial effects include an additional 0.06 cents per unit – representing a 0.79 per cent rise from the forecast FY08 DPU of 7.41 Singapore cents per unit, plus another 0.06 cents per unit in FY09, or a 0.75 per cent increase from the forecast DPU of 7.59 cents.
The property will also contribute to the trust income’s stability through enhanced tenancy and property diversification.
Exposure to MI-Reit’s largest tenant, UE Tech Park, is reduced from 31.6 per cent to 29.8 per cent of portfolio income.
MI-Reit intends to finance the acquisition wholly with debt, given the relative lower cost of borrowing in Japanese yen.
The acquisition is expected to increase MI-Reit’s gearing level from 33 per cent to 36.7 per cent.
MMP – Goldman Sachs
Source of opportunity
We initiate coverage of Macquarie Prime REIT with a DCF-based 12-month target price of S$1.24 and a Neutral rating. Listed in Sept 2005, Prime REIT is a play on Singapore’s prime Orchard Road retail and office space with stakes in Ngee Ann City (NAC) and Wisma Atria (WA) contributing 84% of FY08 earnings by our estimates. Acquisitions in Tokyo and Chengdu, China in FY07 of S$182.5mn and S$70m, respectively, reflect its regional expansion plans, but in our view have diluted the quality of its portfolio.
We think the lack of a developer sponsor limits Prime REIT’s acquisition growth potential, in a market where competition for prime commercial assets remains challenging. Organic growth prospects for Prime REIT’s Singapore assets are mixed; its office portfolio has about 160,000 sq. ft. of space (69% of its office portfolio), up for renewal in FY08/09 and is currently under-rented at about S$5.60 psfpm based on our assessment. As we see it, retail rental growth is limited by the master lease structure of Toshin (cap on rental increase of 25%). Also, we think CapitaLand’s upcoming ION Orchard (end-08 completion) poses a treat to Prime REIT’s ability to command premium rentals for NAC and WA. While valuation appears undemanding, we see no strong driver for re-rating of the stock. In the SREIT retail space, we prefer sector leaders CMT and Suntec, which we believe have good organic growth prospects.
Catalyst
In our view, there is significant potential upside for retail rents versus historical peaks in Singapore and scope for a pickup in growth of retail base rents, although we think that upside for Prime REIT is limited given its master lease structure. We think the stock’s near-term share price performance will be driven by the company delivering on its regional growth strategy. We note that Japan and China have been identified as its main overseas contributors, potentially doubling NPI contribution to 30% from 16% in two years based on our estimates. In the longer term, we view Prime REIT as a potential takeover candidate, with the stock offering exposure to Orchard Road at a large discount to book value.
Valuation
We derive our 12-month target price of S$1.24 using a DCF base-case per share value of S$1.13 and acquisition premium of S$0.10. With the acquisitions of Chinese assets earlier this year, we estimate that Prime REIT will see 84% of 08E NPI from Singapore assets, 9% from Japan assets, and 7% from its China assets. Its portfolio has an 85/15 Retail/Office split. Lifted by upward asset revaluations, Prime REIT’s relatively conservative debt/asset ratio of 35% (FY07E) implies maximum debt capacity of about S$1.2 bn (at 60% debt/asset) to fund future acquisitions. In our view, respective FY07E and FY08E dividend yields of 6.1% and 6.7% and P/NAV of 0.75x are undemanding. We think there is limited downside risk for Prime REIT given its relatively high yield and attractive P/NAV. However, we are mindful of the potential
negative impact on Prime Reit’s retail malls, NAC and WA, due to the opening of neighboring ION Orchard in late 2008. Also, we think it will be hard for Prime REIT to make future acquisitions of trophy assets such as NAC and WA, owing to intense competition for commercial assets.
Key risks
Regulatory risk in China could slow the pace of overseas acquisition growth plans.