Author: tfwee
HWT – DBS
No pick up in utilisation rates yet
At a Glance
• 3Q09 distributable cash of S$3.5m in line with expectations – equates to 1.16Scts in DPU
• 2H09 DPU guidance maintained at 2.86Sccts – can be met with partial waiver from sponsor, Hyflux
• However, utilisation rate stays flat at 45%; management indicates muted demand growth over next 2-3 quarters
• Maintain HOLD in the absence of catalysts, TP S$0.65.
Comment on Results
With the addition of a new plant at the end of June’09, average treatment volumes picked up 10.2% from 234,000 cu m/day in 2Q09 to 258,000 cu m/day in 3Q09. This translated to a 10% q-oq rise in tariff receipts – from S$6.9m in 2Q09 to S$7.6m in 3Q09.
Operating costs were again well controlled, and net operating income was 17% higher q-o-q at S$3.2m. However, this did not translate to a growth in distributable income which stayed largely flat at S$3.5m for the quarter, implying a DPU of 1.16Scts for 3Q09. Higher interest expenses and the absence of interest rate swap gains resulted in this flat q-o-q performance.
Outlook & Recommendation
As we have highlighted before, DPU payout for 2H09 is protected by the Sponsor’s waiver, whereby Hyflux will subordinate its share of distribution entitlement to the extent required to ensure that 2H09 DPU projection of 2.86Scts is achieved. We estimate Hyflux may have to waive about 45-50% of its entitlements in 2H09.
However, we believe FY10 DPU may take a dip, in the absence of any such waiver. Going forward, management indicated that growth in demand for water treatment would be muted over the next 2-3 quarters, as new industries are not likely to be established in the industrial parks (where HWT operates) in the near-term, following the global slowdown. Acquisitions will be the key growth driver, but we do not foresee any action before 2H-FY10. Thus – in the absence of any positive near-term catalysts – we continue to maintain our HOLD call on the stock, TP unchanged at S$0.65.
REITs – BT
All Reits must hold AGMs from next year
MAS mandate seen boosting corporate governance, options for fund raising
WITH effect from Jan 1 next year, all real estate investment trusts (Reits) are required to hold annual general meetings (AGMs).
This mandate from the Monetary Authority of Singapore is seen as boosting corporate governance and giving more flexibility to Reits in their fund-raisings.
Under the revised rules announced yesterday, Reits will be required to hold an AGM once every calendar year and not more than 15 months from the last preceding AGM. This means that by the end of next year, all Reits would have held an AGM.
In line with SGX’s rule on the timing of AGMs for other listed issuers, Reits will have to hold their AGMs within four months from their financial year end.
MAS said it has considered the merits of this requirement, which ‘will enhance corporate governance for Reits by providing an important channel for communication between Reit managers and unitholders, allowing Reit managers to be more accountable to unitholders’.
AGMs will also provide a regular opportunity for Reit managers to seek general mandates from unitholders for the issuance of new units, giving greater flexibility for equity raising.
The past year has seen Reit managers putting up urgent extraordinary general meetings (EGMs) notices to obtain shareholders’ approval for fund-raising exercises to refinance their debts.
With the exception of Ascendas Reit (A-Reit), which has been holding AGMs for the past three fiscal years, other Reits have not held an AGM though they may have other regular communication touch-points.
But some are now looking forward to holding their first AGM.
‘AGMs will promote the exchange of ideas between the company and unitholders, which will ultimately contribute towards the long term growth of the organisation,’ said Yong Yean Chau, chief executive of Parkway Trust Management, the manager of Parkway Life Reit.
‘We are looking forward to holding our first AGM next year.’
Simon Ho, deputy CEO of CapitaMall Trust Management, noted that the AGM requirement will further enhance the transparency of the Reits industry and offer another platform for CapitaMall Trust to engage its investors.
Added Yeo See Kiat, CEO of Suntec Reit’s manager ARA Trust Management (Suntec) Ltd: ‘The AGMs will allow the Reit managers to clarify questions from unitholders, facilitate better understanding of the Reit’s performance and enable the unitholders to know the Reit managers better.’
The cost of holding an AGM does not seem to bother some Reit players.
A spokeswoman from A-Reit noted that the cost is affordable and worthwhile.
A general mandate for the issue of new units passed at these AGMs has allowed A-Reit to make two cash calls this year swiftly and price the units at a smaller discount because of the shorter exposure period.
‘Our latest private placement in August was done above net asset value (NAV),’ she said.
‘I believe we are the only Reit that has issued units above NAV this year.’
Singapore Reits are regulated under the Collective Investment Scheme (CIS). MAS said it made revisions to CIS after taking in feedback from public consultation in May and discussions with Reit players.
Under the latest revisions, MAS also scrapped the requirement for Reit managers seeking authorisation for a new Reit to submit information in a prescribed form since Reit managers are now subject to the capital markets services licensing regime.
The Securities and Futures Act was amended on Aug 1, 2008, to regulate Reit managers through the licensing regime.
HWT – BT
HWT Q3 distributable income surges 27.9%
HYFLUX Water Trust (HWT) yesterday said distributable income for its fiscal third quarter rose 27.9 per cent to $3.49 million from $2.73 million in the year-ago quarter.
Available distribution per unit (DPU) was 1.16 cents (Q3FY2008: 0.91 cent), in-line with the trust’s target DPU of 2.86 cents for the second half of the year (after taking into account subordination and waiver, to the extent necessary, of the sponsor Hyflux Ltd’s distribution for its initial portfolio of water-treatment plants and undertaking relating to certain newly acquired plants).
For the nine months to Sept 30, DPU was 3.48 cents this year, compared to 2.4 cents last year.
The increase in cash available for distribution was mainly attributable to an increase in income from operating and maintenance work and finance income increasing, HWT said.
Operating and maintenance income rose 74 per cent to $4.9 million while finance income was up 65 per cent at $1.8 million.
The quarter’s results took into consideration foreign exchange loss of $2.1 million, from a gain of $1.7 million in the year-ago quarter.
‘Including the first half’s distribution, HWT is expected to meet the full year forecast DPU of 5.42 cents,’ said Gary Kee, chief executive officer of the trustee-manager.
HWT closed yesterday at 67 cents a unit, up half a cent.
MI-REIT – Phillip
MacarthurCook Industrial REIT (MIREIT) reported gross revenue for 2QFY10 of $11.8 million (-4.5% y-o-y, +7.8% q-o-q)), net property income was $9.1 million (-2.7% y-o-y, -2.8% q-o-q). Distributable income was $5.2 million (- 26.2% y-o-y, +28.4% q-o-q). DPU for the quarter was 1.93 cents (-17.5% y-o-y, +28.4 q-o-q). MIREIT also announced a series of recapitalization measures.
Gross revenue for 2QFY10 was lower year-on-year due to lower recovery of property tax and land rent. However it was higher than 1QFY10F as there was a refund of service charges to tenants in 1QFY10. Underlying rental income from the properties remains stable as can be seen from the net property income. Portfolio occupancy rate for 2QFY10 was 98.8%. Distributable income was higher in 2QFY10 compared to the previous quarter, as the Trust did not make a claim for the industrial building allowance. Correspondingly, DPU and the distributable margin were better this quarter.
The REIT recorded a write-down of $37.1 million on its portfolio. Current gearing is 44.7%.
MIREIT announced a series of recapitalization measure to address its refinancing needs.
1. Rights issue of 975.6 million units to raise gross proceeds of $155.1 million.
2. Acquisition of 4 industrial properties for a consideration of $68.6 million.
3. Placement of 221.5 million new units to Cornerstone investors to raise $62 million.
4. A new 3 year term loan facility of $175 million
The rights issue is fully underwritten and the entitlement is 2 rights units for each existing unit. The rights unit is priced at $0.159. Through the rights issue and placement exercise, MIREIT will raise total gross proceeds of $217.1 million. The proceeds will be used to satisfy the acquisition of the 4 industrial properties and the 1A IBP building ($90.0 million), as well as partly reduce the outstanding debt of $226 million. The remaining debt will then be refinanced with the $175 term loan facility. After the whole recapitalization exercise, NAV is estimated at $0.34 and gearing improves to 29%. The total number of units outstanding assuming the recapitalization exercise is completed increases approximately 5.5 times. We estimate the incremental contribution of the 4 additional properties to DPU on a fully diluted basis is 0.4 cents. The rights issue, placement and acquisition are subject to unitholders’ approval.
Valuation and recommendation. MIREIT finally announces plans of its refinancing after months of uncertainty. Although the REIT will be in a much-improved financial state, it comes at a substantial dilution to existing unitholders. We adjusted our projections to factor in the recapitalization measures and arrive at a postrecapitalization fair value of $0.22 based on a WACC of 9.8%. Our 3-year DPU forecasts for FY10F – FY12F are reduced 15% – 60%. We would advise long term investors to take up the rights units as we estimate MIREIT offers a potential FY11F DPU of 1.89 cents, which translate to a dividend yield of 11% based on the rights price of $0.159. For investors who are not keen, we maintain our Sell recommendation.
MapleTree – DB
Announces S$146m of acquisitions and equity issue
Announces accretive acquisitions in Singapore/Japan and placement
MLT’s first acquisitions in more than a year are forecast to raise FY10-11 DPU by 1-1.5%, and marks a return of accretive acquisitions. We continue to like MLT’s stable and well-diversified portfolio, anchored by long leases and quality tenants. Capital structure remains relatively stable with gearing unchanged post-placement. We have revised up our DPUs and TP to reflect the accretion from the acquisitions; Buy maintained.
Placement to raise up to S$82m; proceeds to fund Singapore acquisitions
MLT has launched a private placement for 115m new units (5.9% of existing units) between S$0.69-0.71 (6.6% to 3.9% disc to VWAP) per unit to raise gross proceeds of up to S$82m. Proceeds will be used to fully finance the acquisitions of 2 warehouses in Singapore (S$78m). The resulting debt headroom will be used to fund the acquisition of a third asset in Japan (S$68m). NPI yields for the S’pore and Japan assets are above 9% and 7% respectively (vs current NPI yields of 6.5% and 4.5% respectively), contributing to 1.5% pro-forma DPU accretion.
Revising up FY10-11E DPU by 1-1.5%
We revise down FY09E DPU marginally by 0.7% to 5.83cts to reflect dilution from the new units (expected to be issued on 18 Nov) and have increased FY09-10E DPUs by 1-1.5%. The Singapore acquisitions are expected to be completed by end Dec 09 while the acquisition of the Japan property should be completed by 1Q10. MLT will declare an advanced distribution for existing units from 1 Oct-17 Nov of around 0.74-0.76cts.
Maintain Buy with revised TP of S$0.83 (from S$0.82)
We maintain our Buy rating with valuations attractive at 0.84x P/B and 7.9% FY10E yield. MLT is well-positioned with its well-diversified portfolio and high proportion of long leases. Recovering credit and capital mkts could continue to restore its acquisition-led business model and regional growth strategy; parent Mapletree continues to hold the pipeline of devt assets in Vietnam, China and Malaysia in which MLT has a ROFR. We value MLT using a DDM (see p.5). Risks: reversal of recovery trends for the economy impacting leasing demand, credit risk from tenants on long sale & leasebacks, higher than expected rise in borrowing costs