Category: AllCo
Allco – Nomura
– Since listing, Allco, via lease negotiations (in both Singapore and Perth) and acquisitions, has lengthened the average lease term to 12.8 years and introduced annual rental increases. With cashflows underpinned, we think Allco is set to pursue further opportunistic acquisitions. We retain our STRONG BUY call. – Allco NAV raised, stronger balance sheet. We raise our NAV-based fair value estimate to S$1.73/unit (pre-rights issue), on a brighter outlook for the Perth and Singapore office markets. We expect a more positive outlook for office rents to flow through to higher asset valuations. The lift in revaluation reserves, combined with the current rights issue, as well as approval at the recent EGM for a general mandate to issue new units (on our numbers, an additional 248mn, raising circa S$280mn), will further de-leverage the balance sheet providing scope for Allco to execute its acquisitive strategy in Asia. To reflect more optimistic rental growth expectations, we raise FY08F and FY09F earnings by 5.6% and 8.8%, respectively. – Perth office market — squeeze continues . The Perth office market continues to be characterised by strong demand and a severe shortage of supply. Indeed, vacancy at end-2006 fell to 0.9%, from 3.5% in June 2006. CBRE is suggesting that Perth CBD vacancy will remain below 1% over the next two years due to the lack of supply — no significant supply is scheduled for completion until 2009F. Respite should emerge in 2009F, however, with 200,000sm scheduled for completion over 2009-11F. With limited space options available for – tenants and the prospect of higher supply in two-three years, landlords Grade A face rents in 2006, according to CBRE, rose by 28% y-y, with rentals in 1Q07 rising by an estimated 6.4% q-q. Premium Grade A (face) rents are currently A$500/psm pa, while Grade A rents are A$420/psm. CBRE expects rents to rise by 16-25% in 2007. We raise our rental growth forecasts for Central Park Perth to 17.5% in 2007F (from 15.0%) and 12.5% in 2008F (from 8.5%). These forecasts may prove conservative in light of the supply shortage. Over the past year, prime office yields compressed 50-75bps, with office yields at end-1Q07 at 5.75-6.75%, versus 6.50-7.25% in 1Q06. – Upgrade office rental outlook: +30.5%, 2007F; +15.8%, 2008F. We upgrade our outlook for the office market following a significant drop in vacancy in 2006, and strong rental growth in 1Q07. Office vacancy in the Raffles Place precinct has fallen to 3.2% as at 1Q07 (most recent figure from real estate consultancy JLL) from 3.6% in 4Q06 and 8.6% in 4Q05. According to JLL, Grade A rents in the Raffles precinct have increased by 22.9% q-q to S$11.80psf; CBRE suggests they have increased by 21.4% q-q to S$10.60psf. We expect rentals to peak in 2009. Our higher market rental numbers feed through to higher asset valuations. We now value China Square at S$1,489psf (previous: S$1,375psf) and 55 Market Street at S$1,607psf (previous: S$1,549psf). These valuations appear reasonable in the context of recent en-bloc transactions. Note that Temasek Tower was sold for S$1.04bn (S$1,550psf); Singapore Exchange’s interest in SGX Centre was sold for S$271mn (S$1,599psf); 1 Finlayson Green was sold for S$231mn, equal to S$2,470-2,650psf. (The current existing net lettable area of 86,500sf, though, could be increased to 93,500sf if leased to a single tenant.)
AllCo – SGX
RIGHTS ISSUE PRICE AND UNDERWRITING PRICE
Further to the announcements made by Allco REIT on 25 May 2007 and 26 May 2007, the Board of Directors of Allco (Singapore) Limited, as manager of Allco REIT (“Manager”), is pleased to announce that the Rights Issue Price per Rights Unit is S$1.04. Applications for Excess Rights Units by Eligible Unitholders will be made at the Underwriting Price of S$1.14. Any Remaining Rights Units will be underwritten by the Sole Underwriter at the Underwriting Price.
Further details will be set out in the circular (which includes the Offer Information Statement) to be lodged with the MAS and despatched to Unitholders in due course.
Source : SGX
AllCo – SGX
COMPLETION OF ACQUISITION OF THE CENTRELINK PROPERTY
Singapore, 18 June 2007 – Further to the announcements made by Allco Commercial Real Estate Investment Trust (“Allco REIT”) on 25 June 2007 and 11 June 2007 in relation to the approval of Unitholders at the Extraordinary General Meeting (“EGM”) of the proposed acquisition of a 50.0% indirect interest in the Centrelink Property, the Board of Directors of Allco (Singapore) Limited, as Manager of Allco REIT, is pleased to announce that Allco REIT has today successfully completed the acquisition of a 50.0% indirect interest in the Centrelink Property for A$108.75 million (S$136.5 million 1). Record Realty, a property trust listed on the Australian Securities Exchange (ASX: RRT), will hold the remaining 50.0% indirect interest in the Centrelink Property, which it has acquired for A$109 million.
The purchase consideration is based on the average of two independent valuations2 of the Centrelink Property from CB Richard Ellis Pty Limited and Colliers International Consultancy and Valuation Pty Limited. Cash payment of the purchase consideration will be made upon the close of the Rights Issue which was approved by Unitholders at the EGM on 11 June 2007.
The Centrelink Property is a new contemporary designed, five storey “Grade A” office complex with a net lettable area of approximately 430,556 sq ft. It is strategically located within the core of the Tuggeranong Town Centre, one of four town centres within the city of Canberra, Australia’s capital city and the location of the Federal Parliament House.
The Centrelink Property will be fully leased by the Centrelink National Support Office (a statutory agency of the Australian Federal Government), for an initial period of 18 years, expected to be as and from 4 July 2007. The rental structure incorporates a rental escalation of 3.0% per annum for each year of the lease.
1 Based on an exchange rate of S$1.00 = A$0.7964, being the rate at which Allco REIT has entered into a foreign exchange derivative instrument to purchase the Centrelink Property.
Source : SGX
SREITS – OCBC
Surprise rule change on REIT M&A. In our 2007 strategy report dated 11 Dec 2006 “M&A theme a strong possibility in 2007/08”, we had articulated that M&A could be another avenue for growth. This scenario is now coming closer to reality with the Securities Industry Council’s (SIC) surprise announcement on Friday that it will extend the Singapore Code of Takeover & Mergers to REITs. This move is significant as it means that there is now clarity on M&A rules for S-REITs. Now anyone who acquires 30% or more of any REIT must make a general offer (GO) for the remaining units. Furthermore, anyone who owns 30%-50% of any REIT and acquires a further 1% of the units must also make a GO for the rest of the units.
Market getting more competitive. The key issue with the high-beta REITs such as CCT, MLT, CMT, ART, AREIT is the ability of the managers to meet market growth expectation. This is particularly so in a property up-cycle where fewer properties are available to be acquired. Some are venturing overseas, while others remain domestic focus (AREIT, Cambridge). Another avenue for asset size growth is via own development (AREIT, CMT), but this is a riskier strategy and is constrained by REIT guidelines. However with the SIC rule change on M&A, the REIT manager has another avenue to meet market’s growth expectations
A function of risk appetite. In our opinion, the market has segmented SREITs into two camps, i.e. REITs with high and low growth expectations. The key differentiating factor is the P/B ratio. We see potential for both camps, and the choice for investors for either is a function of their risk appetite. The high-beta REITs are those with high P/B ratio. As the market has already priced in growth, the risks are higher. On the other hand lowbeta REITs, we see minimal downside risks. In fact with them now being eyed as targets for acquisitions, we see a strong upside possibilities.
Potential winners in M&A. We see the likely winners in the new M&A rules to be those trading with higher yield and low price to book relative to their peers in the same sector. We see these REITs to be Allco, Cambridge, Macarthur, MM Prime and First REIT. (Winston Liew)
Office REITs – DBS
All-time high for office property. Office asset values continue to heat up, with transacted prices hitting new highs and now past the last peak, driven by property funds active in asset transactions. With the previous high for office assets set by the sale of 7 floors of Prudential Towers by Straits Steamship Land (Keppel Land), a record of S$2,200 psf set in 1996, office capital values have now hit an all-time high with latest sale of 1 Finlayson Green by Hong Leong to UK-based property fund Develica at unit price of S$2,650 psf (S$2,470 assuming full efficiency). This transaction is hot on the heels of the recent sale of Parakou Building at Robinson Road for S$2,013 psf.
Asset revaluation across office REITs set to continue. Along with the latest year-end revaluation, the Singapore office portfolio for S-REITs has been revalued upwards (CCT +10%, Suntec +30%, K-REIT +7.3%, Allco +7%). We expect asset reflation for office S-REITs to continue, with growth in average rents to boost office asset appraisals.
Boom and bane for office Reits. Office REITs are direct beneficiaries of asset reflation from potential upward revaluation based on market comparison of market transactions. However, with the current bullish outlook for Singapore office rentals, price expectations of asset owners have also escalated, compressing physical yields to lower levels (below 3% for the case of the Temasek Tower acquisition by MGPA). Yield accretiveness of acquisitions are reduced, and coupled with strong competition for assets from private property funds with more flexibility and less stringent regulations on investment and access to funds, S-REITs in our view are currently priced out of the market for commercial assets.
Overseas expansion would be a natural course to drive acquisition growth. K-REIT stands out in asset reflation scenario. While we prefer the DCF approach in valuing S-REITs because it takes into account the intrinsic cashflows generation ability of the underlying assets, RNAV approach could also possibly breach the gap, as it factors in asset pricing by market players acquiring assets at capital values pricing in future rental growth prospects. In an asset reflation scenario, K-REIT stands out with potential upside of 93% versus CCT (-2.7%), Suntec (+7.3%) and Allco (+48%). We have BUY recommendation for K-REIT with target price of S$3.70 per unit based on DCF estimates.