HWT – DBS
Acquisition terms inspire confidence
Story: Hyflux Water Trust (“HWT”) has agreed to purchase 5 water/wastewater treatment plants from sponsor Hyflux, for a total consideration of S$88m. The acquisition is expected to be financed by an outstanding revolving loan facility of US$66m.
Point: This is the first phase of acquisitions under the ROFOAR portfolio offered by Hyflux in end-June and will be conducted in two tranches, depending on the expected date of commencement of operations of the individual plants. The 5 plants have a combined capacity of treating 160,000 cu m of water/day and represent a 36% increase over current portfolio capacity of 445,000 cu m/day. The purchase price of S$88m represents a P/BV of roughly 1.4x, as against IPO valuation of 1.3x P/BV. The premium is justifiable given that all the plants will be fully functional at the time of acquisition, compared to the IPO portfolio where only 7 of the 13 plants were operational. HWT will also ink agreements with sponsor Hyflux to eliminate interest rate risk and risk of lower-than-expected utilisation rates, in order to ensure positive DPU accretion. With this acquisition in place, we conservatively enhance our DPU forecasts by 8%, 20% and 30% over the next 3 years, based on assumptions of 50% capacity utilization in the first year – ramping up to 100% by the 4th year – and fixed rate interest payments of 5% per annum.
Relevance: Following our downgrade last month, share price has plunged 32% – underperforming the broad market index, which fell 17% over the same period – and is now trading at 14% FY09 yield. Based on the higher valuation on expanded asset base and a target dividend yield of ~10% for this asset class, we revise our target price upwards to S$0.61. We expect the market to react favourably to HWT’s positive acquisition intent on favourable terms and the relatively secure yield accretive growth story and upgrade the counter to BUY.
a-iTrust – BT
a-iTrust expanding tech park in Chennai
ASCENDAS India Trust (a-iTrust) is embarking on a $62.7 million expansion of its IT park in Chennai to meet demand for business space in the Indian city. Construction at the International Tech Park Chennai (ITPC) will begin this month and could be completed in early 2010, adding 802,000 sq ft of new business space.
a-iTrust expects the expansion to be yield accretive for unitholders. According to the trust, even though marketing has not begun, there are already indications of interest for 30 per cent of the new space from existing clients looking to grow their operations.
‘We expect the leasing of the new space to progress well,’ said Jonathan Yap, chief executive of Ascendas Property Fund Trustee, the trustee-manager of a-iTrust. Overall occupancy at the ITPC was 96 per cent as at Sept 30, with 1.26 million sq ft of business space taken up. Office space achieved full occupancy.
a-iTrust will fund the total development cost of $62.7 million by debt. This will raise its gearing from 5 per cent as at Sept 30 to 11 per cent. Units of a-iTrust gained two cents to end trading at 48 cents yesterday.
Rickmers – BT
Rickmers Q3 revenue doubles, profit up 15%
SHIPPING trust Rickmers Maritime continued to deliver consistent and on-target results with third-quarter charter revenue almost doubling and net profit rising 15 per cent.
The three months ended Sept 30, 2008, saw charter revenue rising to US$26.5 million from the previous corresponding quarter’s US$13.46 million and net profit climbing to US$9.7 million from US$8.37 million.
Cash flow from operating activities increased 89 per cent to US$19.6 million and helped the trust keep distribution stable at US$9.5 million or 2.25 US cents per unit, maintaining its distribution rate for the second consecutive quarter.
The sharp increase in charter revenue was due mainly to the consistent flow of new vessels coming onto Rickmers Maritime’s portfolio, resulting in additional charter hire days available during the period.
For the first nine months, charter revenue leapt to US$72.6 million from US$20.8 million previously and net profit more than doubled to US$27.3 million from US$11.22 million while cash flow from operating activities more than trebled to US$54.8 million from US$16.25 million.
Allaying concerns about a slowdown in the container line market, CEO Thomas Preben Hansen assured investors that Rickmers Maritime has a strong pipeline of vessel deliveries and long-term leases that stretches into 2020 and it enjoys secured total revenue of about US$2 billion over the period. ‘Rickmers Maritime has very limited exposure to the charter market before 2014,’ Mr Hansen said.
Emphasising the strength of the trust’s counterparties, Mr Hansen added: ‘We have not been contacted for renegotiation of contracts and don’t expect it to happen given the quality of our charterers.’
The trust has secured funding for its capital expenditure for the next year, said CFO Quah Ban Huat.
Rickmers Maritime closed four cents higher at 42 cents yesterday.
Suntec – OCBC
Defensive focus
Steady 4Q, no surprises. Suntec REIT (Suntec) posted a 20.3% YoY and a 3.7% QoQ gain in 4Q gross revenue to S$61.4m. Results were as expected. The REIT will distribute 2.85 S cents per unit, up 2.2% QoQ1. Portfolio performance was largely stable with Suntec’s office and retail portfolios enjoying occupancy rates of 99.3% and 99.6% respectively. Leases at Suntec City office were secured at an average rent of S$12.57 psf per month in 4Q. Retail rentals edged up slightly QoQ. Suntec’s properties have been revalued, leading to a marginal revaluation surplus of S$11.9m for 4Q ex One Raffles Quay, which is classified separately. Implied cap rates (up around 25 basis points since last year according to management) still feel a little low to us. Due to the change in financial year end, Suntec will revalue its properties again in December.
Defensive focus. Suntec announced yesterday it acquired 12,023 square feet (sf) of strata space at Suntec City Office Towers for S$26.3m. The buy was funded with the proceeds from a Nov 2006 private placement earmarked for this purpose. Suntec has about S$40m in unused proceeds left. However, management guided it is taking a step back and has relaxed its ‘proactive’ acquisition strategy. Suntec also said that the major asset enhancement plans for Park Mall have been shelved for now.
Unknowns priced in. Suntec will see about S$825m of debt coming up for refinancing in the next 15 months (Exhibit 2). In our view, the cost of debt achieved (versus the current all-in cost of 3.19%) will be the key risk here. Our focus is primarily on the uncertainty from the rental and occupancy front. On the office side, about 30% of the tenant mix is from the financial services industry. Suntec sees 32.7% of its office portfolio up for renewal over the next 15 months. Industry data shows that office rentals have peaked, as we had expected, and we could see office rents back in single digits going forwards. Still, the average rent for expiring leases in 2009 is at a very low S$5.32 psf pm – which is a nice hedge even in the face of rental declines. We feel these risks have been more than factored in at current price levels. Our revised RNAV estimate of S$1.05 prices in a 38% decline in asset values. Our fair value estimate for Suntec is 90 S cents, at a 15% discount to our RNAV estimate. Maintain BUY.
a-iTrust – BT
Stable result
Story: Ascendas India Trust (AiT) reported 2Q08 results in line with expectations. Gross revenues increased 18% yoy to S$29.8m, mainly due to an expanded portfolio (Addition of Vega and Crest in 2H08). Net property income grew a lower 2% due to higher marketing fees and utilities costs. Distributable income grew by 24% yoy to S$13.8m, translating to a DPU of 1.82 cts. For the 1st half of the year, unitholders will receive a total DPU of 3.47cts.
Gearing remains low at 5% currently but is expected to increase to 13.5% after drawing down its loan as construction of its 3 new buildings commences.
Point: Construction schedule is on track with completion targeted in March’10. Of the 3 buildings being constructed, other than a BTS facility, pre-leasing activities, for the other 2, will usually start 6 months prior completion, as guided by management.
On the back of a global slowdown, we view that demand for AiT’s space at its IT parks could soften. As such, we moderate our occupancy and rental rates moving forward; we are now expecting occupancies to decline 5% on the top of a 5% drop in asking rents for AiT’s properties in FY10F.
Relevance: While valuations remain attractive at 0.5x P/BV with an attractive DPU yield of 15-16%, AiT is not unique among the S-REITs, that trade at an average of 0.4x P/BV. As such, we maintain our HOLD call on AiT, with a target price of 0.52 based on 10% discount to our RNAV.