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$1.2 bn (at 60% debt/asset) to fund future acquisitions. In our view, respective FY07E and FY08E dividend yields of 6.1% and 6.7% and P/NAV of 0.75x are undemanding. We think there is limited downside risk for Prime REIT given its relatively high yield and attractive P/NAV. However, we are mindful of the potential
negative impact on Prime Reit’s retail malls, NAC and WA, due to the opening of neighboring ION Orchard in late 2008. Also, we think it will be hard for Prime REIT to make future acquisitions of trophy assets such as NAC and WA, owing to intense competition for commercial assets.
Key risks
Regulatory risk in China could slow the pace of overseas acquisition growth plans.
FSL – SGX
FSL TRUST TO TRADE IN S$ FROM 30 NOVEMBER 2007
Singapore, 22 November 2007 – FSL Trust Management Pte. Ltd. (“FSLTM”), Trustee-Manager of First Ship Lease Trust (“FSL Trust”), announced today that the trading currency of FSL Trust’s units will be changed from USD (United States Dollar) to SGD (Singapore Dollar). Trading in SGD will commence on Friday, 30 November 2007.
Mr Cheong Chee Tham, Senior Vice President and Chief Financial Officer of FSLTM, explained: “We believe that the change in trading currency will enhance liquidity of the counter as it removes the necessity of foreign exchange conversion. With easier settlement of trades, retail investors, in particular, will find it more convenient to trade in FSL Trust’s units.
“In addition, several funds and insurance companies in Singapore, which are permitted to invest only in SGD-denominated stocks, can now consider FSL Trust as an investment option. This will expand our universe of potential institutional investors.”
Future periodic distributions to unitholders will continue to be denominated in USD. As with past distributions, unitholders will have the option to elect and receive their distribution entitlements in either USD or SGD.
Source : SGX
PST – UOBKH
The trump card: debt restructuring.
Setting into motion its target of US$200m worth of ship acquisitions p.a. We believe the re-rating of Singapore shipping trusts is contingent on accretive ship acquisitions. Pacific Shipping Trust (PST) has set a ship acquisition target of S$200m p.a. It rolled this into motion with the recent acquisition of two 4,250 TEU containerships from its sponsor, Pacific International Lines (PIL). These two ships are part of the 38, which PST has the Right of First Refusal to acquire from PIL. The acquisition will increase PST’s current fleet from eight to 10 vessels and raise its fleet capacity by 61% from 13,864 to 22,364 TEUs.
Acquisition is accretive. We estimate PST’s latest acquisition offers an asset yield of 10.5% and an IRR of 8.5%. Whether the acquisition is funded totally by debt at an approximate 6% cost of borrowing or by a mixture of debt and equity at WACC of 7%, the acquisition should be accretive to unitholders. As PST is repaying its debt, falling interest expense will also boost distributable cash and dividend yield, which we forecast will rise from 10.2% in 2007 to 12.6% by 2012.
Debt restructuring is PST’s trump card. PST has a conservative straightline debt repayment period of over 10-12 years from the time it was listed compared with its initial fleet’s remaining economic lifespan of about 26 years. Its debt repayment schedule is conservative compared with First Ship Lease Trust’s (FSLT) and Rickmers Maritime’s (RMT) and explains PST’s FY08 EBITDA yield (after interest expense before debt repayment) of 18.0% compared with FSLT’s 12.6% and RMT’s 11.1%. We do not discount the possibility of debt restructuring though PST’s management presently has no plans to do so. This would place PST on an equal footing with FSLT and RMT. The additional distributable cash flow arising from debt restructuring could be used for ship acquisitions or higher dividend payout.
Yield-based target price: US$0.50. We expect the dividend yields of Singapore shipping trusts to compress due to re-rating on the back of accretive acquisitions, similar to that experienced by their US peers. We expect PST to trade at a dividend yield of 8.5% by end-08 and 8.0% by end- 09. This translates into target prices of US$0.50 and US$0.53 respectively. PST’s current share price trades at a 35% discount to our DCF valuation of US$0.64/share and 0.86x P/RNAV.