Singapore Corporate News - 28 Mar 2008

$484m gain in value of A-Reit properties

ASCENDAS Real Estate Investment Trust (A-Reit) said yesterday the book value of its investment properties rose $483.6 million - about 14.2 per cent - during the latest annual valuation exercise.

A-Reit attributed the increase - from the previous book value at Feb 29, 2008 - to an improving industrial property market, which has led to higher occupancy and higher rents across its portfolio.

The latest valuations will be reflected in A-Reit's financial statements for the year ending March 31, 2008, the trust said.

Valuations were revised upwards across all sectors, with the business & science parks sector registering the largest appreciation of $244.4 million.

Properties in the high-tech industrial sector appreciated $116.5 million, while those in the light industrial sector (including flatted factories) and logistics & distribution centres registered gains of $60.2 million and $63.2 million respectively.

A-Reit's third development property - HansaPoint@CBP, which was completed in January 2008 - appreciated by $43.2 million, or 166 per cent, from its development cost. Post-revaluation, the annualised net property income yield of the property portfolio is about 6.4 per cent, which is in line with the prevailing market, A-Reit said.

The adjusted net asset value, based on the Dec 31, 2007 balance sheet, will be $1.85 per unit.

The valuations were done by DTZ Debenham Tie Leung, CB Richard Ellis, Chesterton and Jones Lang LaSalle, A-Reit said.

The trust said the increases in valuation are testament to the 'manager's proactive asset management strategies in maintaining high occupancy rates and the manager's ability to deliver value to unit-holders by pursuing attractive acquisitions and development opportunities while maintaining a disciplined approach to ensure risks are mitigated'.

A-Reit's shares closed nine cents higher at $2.29 yesterday. The stock price has shed 6.9 per cent since the start of the year.

CapitaLand to build Viet condo

CAPITALAND said yesterday that it will build a US$500 million project in Ho Chi Minh City with a Vietnamese partner.

CapitaLand will take a 60 per cent stake in the proposed joint venture. Thien Duc, one of CapitaLand's strategic partners in Vietnam, will hold the other 40 per cent.

Thien Duc is a shareholder of CapitaLand's The Vista condominium in Ho Chi Minh City.

For the latest project, CapitaLand, as lead development manager, will build a 28-storey condo with about 1,400 apartments and commercial and retail space on a 6.7 hectare site.

Most of the apartments will enjoy sweeping views of the Saigon River and skyline, CapitaLand said. It aims to launch the first phase of the project by the second quarter of 2009.

'Ho Chi Minh City continues to be a key focus for our residential and other investments in Vietnam,' said Lui Chong Chee, chief executive of CapitaLand Residential.

'For residential, given the rapid growth in population, increased affordability and tight supply, we are confident of strong sales, especially for well-designed homes.'

CapitaLand will continue to look for prime development sites in Ho Chi Minh City and Hanoi to build quality homes, he said.

Including the newest project, CapitaLand will be building more than 4,200 homes in Ho Chi Minh City.

Vietnam's residential property market is booming, with queues of buyers in 2007 for CapitaLand's The Vista and Keppel Land and Tien Phuoc's The Estella, property firm CB Richard Ellis (CBRE) said in a recent report.

But buyers are becoming more discriminating. CBRE said: 'Increased development in some sectors will relieve the supply crunch in the future. (But) well-priced quality developments are, and will remain, the top sellers.'

CapitaLand's shares closed 14 cents higher at $6.40 yesterday. The stock has climbed 2.1 per cent this year.

KSE bags US$130m charter deal

MARKING its move up the value chain into offshore rig charters and drilling operations, KS Energy (KSE) has just clinched a US$130 million-plus, three-year charter from an unnamed oil major to drill for oil and gas in the Mediterranean Sea.

The charter of its 300-foot drilling jack-up KS MedStar-1 - including drilling, operating and managing it - comes with a one-year renewal option which, if exercised, will up the contract value to US$175.2 million.

The deal is significant as it launches the erstwhile rig builder and oilfield services provider - now armed with the drilling accreditation of Norway's Atlantic Oilfield Services(AOS) which it acquired last May - into higher-value and actual offshore rig operations.

Taking into account AOS's ongoing operations, this, however, marks KSE's second offshore rig charter, following that of AOS's Atlantic Rotterdam, which is now operating in the North Sea.

(This is apart from smaller land rig charters, like the recent S$47 million charters for rigs in Pakistan and the Kurdistan region of Iraq which KSE secured last June.)

It expects to conclude its next offshore rig charter 'by this year', Kris Wiluan, its chairman and CEO, said yesterday. This is for the US$148 million drilling jack-up it is currently building in a joint venture in the Middle East.

There is 'lots of interest in that Friede & Goldman Super M2 jack-up which will be ready in late-2009', he told BT during a teleconference.

'Right now the (offshore E&P) party is strong,' the Indonesian tycoon stressed, adding that 'our priority is to secure the long-term, three-four-year rig charters, as we don't know what the outlook will be like in a couple of years' time'.

Reflecting the current hot demand, he said KSE was getting US$120,000 per day for its latest Mediterranean Sea rig charter, versus the going daily rate of about US$100,000.

And in order to strike while the iron is still hot, KSE is now looking to buy two more offshore jack-up rigs, he said. Typically, these cost US$100 million to US$200 million each.

'Yes, financing is getting harder,' Mr Wiluan conceded of the impact of the current credit crunch, so it intends to finance its rig purchases through its own internal resources and also from divestment of its non-core assets, estimated to be worth a total US$80 million.

The latter includes KSE's latest US$43 million sale this week to an 'interested third party' of the rig KS Venture, whose legs were damaged by Hurricane Katrina and which it earlier planned to repair in China.

But the repairs would have taken at least a year, whereas KSE wanted to have rigs available for charters sooner than that to capitalise on current strong demand, he said.

Given KSE's move into drilling and rig management, the group will also, in future, need to hire even more experienced hands to beef up its current E&P manpower strength of about 400 personnel in the field and 55-60 top managers, thanks to its recent AOS acquisition.

'This is sufficient manpower for another one to two rig charters,' he said.

KSE's share price closed up 26 cents, or 16 per cent higher, at $1.89 yesterday.

FCT to buy $480m malls from parent

FRASERS Centrepoint Trust (FCT) , which owns suburban malls, said yesterday that it would buy three properties worth $480 million in two years, funded mostly through loans as investor appetite for new equity dries up. 'Right now, the capital market is not there unfortunately, but the banks are still lending and I've got the debt headroom to go much higher,' Christopher Tang, CEO of Fraser Centrepoint Asset Management, told Reuters.

FCT is acquiring the three suburban malls from parent Frasers Centrepoint, the property arm of conglomerate Fraser and Neave, and is prepared to raise its debt gearing from 29 per cent to 45 per cent to do so, he said. 'Our long-term target is always about 30-35 per cent but we're now prepared for short periods of time to go as high as 40-45 per cent, until the capital market works through its issues.'

FCT's share price rose up to 3.3 per cent in late session trading before ending 0.9 per cent up in line with the broader market. Rival retail Reits CapitaMall Trust was up 1.2 per cent, while Suntec Reit lost 0.7 per cent.

Poor market conditions have caused Reits such as MacarthurCook Industrial and Allco Commercial to scrap plans for fund-raising by issuing new shares. With the Reits' ability to fund their growth and repay existing debts squeezed, analysts such as Goldman Sachs and UBS are predicting that smaller Reits such as MacarthurCook will become acquisition targets.

Mr Tang said that FCT's balance sheet remained strong with most debts due in 2011, and FCT had an A3 corporate rating from Moody's. He declined to say if he was planning to acquire another Reit, but did not rule it out. 'I think, as a strategy, it's something that most people would not rule out. It's obviously another way of growing. M&A will probably be an area that will have more activity in the Singapore Reit market in the future. Like in the United States and Australia, it's an inevitable phase for the market that there will be consolidation from time to time.'

Mr Tang remains bullish about the outlook for suburban malls, despite concerns that consumers would cut expenses amidst fears of a slowing global economy and surging inflation. 'Even in the worst of times, during the Sars period in 2003, our occupancy never dropped because suburban malls are non-discretionary spending and it rides economic cycles very well,' he said.

Ezra inks US$77.6m worth of charter deals

OFFSHORE and marine service provider Ezra Holdings has signed charter contracts worth US$77.6 million which it expects to have an impact on its earnings from the current fiscal year.

The deals - for seven vessels - comprise new contracts and the renewal of existing contracts.

They require Ezra to charter five Anchor Handling Towing and Supply vessels (AHTS), an Anchor Handling Tug and the Lewek Chancellor - the group's heavy-lift accommodation crane barge - to various parties for operation in South-east Asia, India and Australia.

Ezra said the charters are for as long as three years, excluding options for extension.

'Our well-equipped and high-specification vessels are experiencing robust demand from the offshore oil and gas sector and there does not appear to be any let-up in the level of enquiries,' said Ezra's managing director Lionel Lee.

'Ezra is maintaining its leading edge in deepwater support work as four of the five AHTS under this latest batch of contracts will be involved in deepwater operations in Malaysia and Australia.'

Ezra now manages 30 vessels and has 11 more scheduled to come into service by 2010. These include a floating production support offloading vessel, two self-propelled jack-up rigs, four multi-functional support vessels and an ultra-large pipe-laying accommodation, well-service and maintenance vessel.

'World demand for energy continues to remain strong in the year ahead, and we are optimistic about the many charter opportunities presented by the acute global shortage of younger, medium and large-sized offshore support vessels we offer,' Mr Lee said.

Ezra's share price closed up seven cents yesterday, at $1.87.

Ezra reported glowing first-quarter results in January.

AusGroup sees 35% rise in FY'08 revenue

SINGAPORE-LISTED AusGroup, which provides engineering to mining and energy firms, yesterday said that it sees revenue up at least 35 per cent in its 2008 fiscal year and is looking for an acquisition for growth.

AusGroup executive director Stuart Kenny told Reuters that the firm sees at least A$380 million (S$480.7 million) in revenue for the fiscal year ending June 2008, as compared to A$281.1 million last year. 'We have been able to grow and continue to capitalise on the market conditions,' he said in an interview.

Global commodity prices such as oil and gold have hit record highs but corrected lower in recent weeks, with the Reuters-Jefferies CRB Index of 19 commodities futures contracts 6 per cent off a record hit earlier in March.

When asked about the impact of volatile commodity prices on the Australia-based firm, Mr Kenny said that AusGroup was unaffected by short-term price adjustments while demand from miners and oil firms for engineering services remained strong.

'The commitments made by major iron ore miners are long term commitments . . . and not based on short-term adjustments in the markets,' he said. 'I don't see any relaxation or reduction in (oil) demand . . . the commitment to develop new oil fields is going to remain.'

The company is looking at one major acquisition over the next 12 months and is also looking at joint ventures, he said. 'We'd like to take a big buy now to add some substance to the group . . . we're looking at something more substantial than what we've done so far,' he said. 'We're exploring opportunities in joint ventures to help us continue to grow and we'll be able to combine resources to handle larger projects.'

AusGroup shares rallied 5.7 per cent by 0830 GMT, but remain 51 per cent down so far this year, versus a 13 per cent drop in Singapore's broader Straits Times Index.

OKP Hldgs gets $16.8m CTE contract

OKP Holdings has secured a $16.86 million contract to widen a stretch of the Central Tunnel Expressway between Ang Mo Kio Ave 1 and Ave 3 by building an extra lane in each direction as well as improve existing infrastructure. OKP said it has begun on the first phase of the work, which is expected to be completed by end-August 2009.

Sky One faces breach of contract claims SKY One Holdings said a writ of summons has been served on the company. The writ had been obtained by mDR Limited, which is claiming S$315,000 for an alleged breach of contract arising from a sale and purchase agreement between the two companies made in 2006. mDR is also claiming further sums for alleged breach of warranties made under the same agreement. Sky One said it will defend the claims and has obtained a deed of indemnity from a former director of the company.

SingXpress sells stake in Global Med

SINGXPRESS yesterday said it has disposed its entire stake of 2,817,881 shares in the quoted securities of Global Med Technologies at an average price of US$0.84 per share, or about S$3.25 million in total.

CCT gets option to buy 1 George Street for $1.17b

Big office investment sales deals have not ground to a complete halt. CapitaCommercial Trust announced yesterday that it has an option from sponsor CapitaLand to buy 1 George Street for $1.165 billion or $2,600 psf of net lettable area, showing that income support may be the way to make acquisitions palatable to Reits.

This is especially so when it comes to office blocks with a substantial portion of leases signed a few years ago when rentals were weak. Never mind that income support for such deals may once have been frowned upon.

The deal for 1 George Street involves a five-year rental guarantee, with seller CapitaLand ensuring a minimum net property income of $49.5 million per annum, translating to a net property yield of 4.25 per cent per annum on the purchase price till 2013.

This means that CapitaLand will top up any shortfall in net property income to ensure that the $49.5 million floor is achieved every year for the period. The acquisition will be funded entirely through debt; there will be no equity raising.

1 George Street is a 23-storey Grade A commercial building that was completed three years ago. It is fully leased and its tenants include The Royal Bank of Scotland, WongPartnership and Lloyd's of London (Asia).)

Most of the leases were signed around 2004/2005, when office rents were weak, which is why CapitaLand is providing yield protection for the asset's acquisition by CCT. The $49.5 million annual minimum net property income implies gross monthly rentals of $10.50 psf. Given that the current average market rental in the Raffles Place area is about $16.30 psf, this spells upside for 1 George St as leases are renewed, CapitaCommercial Trust Management CEO Lynette Leong said.

Leases for about 50 per cent of the net lettable area in the property will come up for renewal in 2008 and 2009. Recently, a new lease for a small space in the building was signed for $19 psf, Ms Leong revealed.

'With the yield-protection given by CapitaLand, CCT will be able to attain minimum returns from this asset. The five-year yield protection eliminates all the downside risk and whatever upside there is from the asset, it will all flow through to CCT. That's a pretty compelling offer,' Ms Leong said.

The deal drew an inevitable comparison with K-Reit Asia's acquisition of a one-third stake in One Raffles Quay from its parent, Keppel Land. The two deals have similarities - they involve income support and are at prices seen as lower than market.

However, Ms Leong, at a media and analyst briefing yesterday, argued that there were important differences between the two deals.

For one, CCT will get 100 per cent direct ownership of 1 George Street, and the asset will enjoy full tax transparency as a result of being owned by a Reit. This means that CCT would not have to pay tax on income from this asset, unlike K-Reit Asia's acquisition of a one-third stake in ORQ which is being effected through the purchase of shares in the company that owns ORQ. Hence, the income that K-Reit will receive from the asset would be net of 18 per cent corporate tax.

Another difference is that KepLand will provide income support only till 2011 whereas CapitaLand is doing so till 2013, beyond the 2011/2012 timeframe when a spike in Grade A office space is expected.

CapitaLand Commercial CEO Wen Khai Meng explained that the reason for 'providing the floor for five years is to address the view that there will be a huge supply in 2011/2012'.

Another difference: CCT has secured 100 per cent committed debt funding for its proposed acquisition of 1 George Street and will not have any equity raising exercise. K-Reit, on the other hand, is seeking unitholders' approval for a rights issue to help partly refinance a bridging loan taken from Keppel Corp to complete the acquisition of the one-third stake in ORQ.

The $2,600 psf of net lettable area at which CapitaLand is proposing to sell 1 George St to CCT is lower than the $2,700 psf at which the asset was valued at in a deal last August when CapitaLand bought the remaining half share in the asset to gain full ownership of the award-winning property.

CapitaLand expects to book a gain of about $47.1 million after taking into account the yield protection and the company's 30.5 per cent interest in CCT.

Mr Wen said that the group had to pay $2,700 psf in last August's deal for control premium. 'We feel $2,600 psf, plus income support, is a good deal given that CapitaLand still has about 30 per cent stake in CCT and given that we are the manager of the Reit and have a certain responsibility to help our sponsored-Reit to grow.

'I personally dislike income support, because it conjures up all sorts of wrong impressions. But it would be challenging for a Reit to justify non-yield accretion for the first few years in an acquisition. Based on current rental rates at 1 George Street, the yield would be below 4.25 per cent, but we are seeing very strong rental reversion,' he said

'The yield-protection arrangement of 4.25 per cent pa for five years makes the acquisition compelling, given the current blended yield of CCT's Grade A office assets is 3.2 per cent,' Ms Leong said.

Even with 100 per cent debt funding for the acquisition, CCT's gearing will rise to only about 40 per cent from the current 27 per cent, the trust's manager highlighted.

The deal will be subject to CCT unitholders' approval at an extraordinary general meeting to be held by June 30, as it is deemed an interested party transaction. CapitaLand is not allowed to vote. The acquisition is slated for completion by end-July.