AllCo – Kim Eng

Fraser Centrepoint Limited acquires 17.7% stake in Allco REIT and 100% in Allco REIT’s manager‏

Key points:

F&N’s property arm, Fraser Centrepoint, is buying: 1) a 17.7% stake in Allco Commercial REIT; 2) 100% of Allco REIT’s manager from Allco Finance Group, for an aggregate purchase price of S$180m.

F&N intends to use Allco REIT as its vehicle for holding its commercial properties. With this latest deal, F&N is scrapping its plans for a commercial REIT, annouunced earlier on 26 Jun 08.
The three properties initially meant for the REIT (Alexandra Point, Alexandra Technopark and Valley Point) will form the pipeline for Allco REIT.

Key info on Allco REIT:

S$2,045m in assets, S$917m in borrowings, 709.6m units o/s and NAV of S$1.44. Allco REIT’s property portfolio includes nine properties in Singapore, Australia and Japan. Its Singapore-based assets include a 100% in the flagship China Square Central, 55 Market Street and Key Point in Beach Road.

F&N is paying S$104m for the 17.7% stake in Allco, which translates to a unit price of S$0.83, a 17% premium over closing price of S$0.71, and a 42% discount to Allco’s latest NAV of S$1.44.

Comments

At one stroke, F&N acquires a ready vehicle for its commercial REIT without having to go through a lengthy listing process and also saves on listing expenses. It also provides Allco REIT an avenue for growth via F&N’s property pipeline.

Despite paying a premium to last done price, F&N is acquiring the stake at an attractive 42% discount to NAV.

We believe F&N will seek to consolidate its interest in Allco further and this will in turn underpins Allco REIT’s stock price.

This latest deal effectively provides a new support level for Allco’s stock price and is in line with the market view that the smaller and highly-geared REITs are potentially acquisition targets as they faced tighter access to funding amidst a credit crunch .

Other potential targets that may be in play: Cambridge Industrial REIT, MacCook REIT.