ALLCO – DBS
ALLCO, dbs remains a BUY with target price $1.39 (from $1.45)
– Story Allco is a real estate investment trust established with the principal strategy of acquiring direct and indirect interest in high quality, real estate assets and real estate related assets located in Singapore and Australia.
– Point Allco has strong office income flows from China Square Central and Central Park (Perth), on account of rising office rentals in Singapore and the resource industry boom in Perth. After its first acquisition of 55 Market Street, Allco has recently acquired a 50% stake in Centrelink Property in Canberra which brings Allco back to a 5050 asset exposure in both Singapore and Australian markets.
– Relevance Following the rights issue by Allco to fund the Centrelink property acquisition and 55 Market Street, we maintain our Buy recommendation and accordingly adjust our DCF derived target price to S$ 1.39.
– Second acquisition – The Centrelink Property in Canberra. Allco has just acquired a 50% stake in Centrelink Property, for a consideration of A$108.75m with projected FY08 property yield of 7.4%. This was announced together with the proposed renounceable rights issue to fund the acquisition. The asset is a new “Grade A” office complex with NLA of 430,556 sf, strategically located within the core of the Tuggeranong Town Centre in Canberra. This asset would tie in a long lease of 18 years to anchor tenant, the Centrelink National Support Office (state agency of the Australian Federal Government), with organic growth of 3% per annum incorporated into the acquisition by annual stepped rent provisions.
– Rights issue raises debt capacity for acquisitions. With the acquisition, the portfolio now crosses the billion $ mark to S$1,016.6m. With the rights issue tied back-to-back to the Centrelink Property acquisition, gearing is now reduced from 33% to 23% which unlocks more gearing headroom for acquisitions. Assuming the maximum gearing cap of 60% in line with Singapore Property Fund Guidelines, this would provide debt capacity of approximately another S$1bn for acquisitions to be fully funded by debt.
– Ex-rights price target of S$ 1.39. Previously, we had factored in the 55 Market Street acquisition prior to the rights issue funded by debt, which is accretive and higher than the initial estimated 5% cap rate upon acquisition. Together with the Centrelink acquisition, Allco would par down debt associated with the 55 Market Street acquisition by a renounceable rights issue which raises proceeds of about S$210m. Following Allco going ex-rights, we maintain our Buy recommendation and accordingly adjust our DCF derived target price to S$ 1.39.
– Point Allco has strong office income flows from China Square Central and Central Park (Perth), on account of rising office rentals in Singapore and the resource industry boom in Perth. After its first acquisition of 55 Market Street, Allco has recently acquired a 50% stake in Centrelink Property in Canberra which brings Allco back to a 5050 asset exposure in both Singapore and Australian markets.
– Relevance Following the rights issue by Allco to fund the Centrelink property acquisition and 55 Market Street, we maintain our Buy recommendation and accordingly adjust our DCF derived target price to S$ 1.39.
– Second acquisition – The Centrelink Property in Canberra. Allco has just acquired a 50% stake in Centrelink Property, for a consideration of A$108.75m with projected FY08 property yield of 7.4%. This was announced together with the proposed renounceable rights issue to fund the acquisition. The asset is a new “Grade A” office complex with NLA of 430,556 sf, strategically located within the core of the Tuggeranong Town Centre in Canberra. This asset would tie in a long lease of 18 years to anchor tenant, the Centrelink National Support Office (state agency of the Australian Federal Government), with organic growth of 3% per annum incorporated into the acquisition by annual stepped rent provisions.
– Rights issue raises debt capacity for acquisitions. With the acquisition, the portfolio now crosses the billion $ mark to S$1,016.6m. With the rights issue tied back-to-back to the Centrelink Property acquisition, gearing is now reduced from 33% to 23% which unlocks more gearing headroom for acquisitions. Assuming the maximum gearing cap of 60% in line with Singapore Property Fund Guidelines, this would provide debt capacity of approximately another S$1bn for acquisitions to be fully funded by debt.
– Ex-rights price target of S$ 1.39. Previously, we had factored in the 55 Market Street acquisition prior to the rights issue funded by debt, which is accretive and higher than the initial estimated 5% cap rate upon acquisition. Together with the Centrelink acquisition, Allco would par down debt associated with the 55 Market Street acquisition by a renounceable rights issue which raises proceeds of about S$210m. Following Allco going ex-rights, we maintain our Buy recommendation and accordingly adjust our DCF derived target price to S$ 1.39.