Category: AllCo

 

Allco – ML

ALLCO, ml remains a BUY with target price $1.93

– Acquires 50% interest in Centrelink Property, Canberra . Allco Commercial REIT has announced the acquisition of a 50% interest in the Centrelink Property Canberra, Australia for a consideration of S$136.5mn. The office building will be completed in June 2007 and is being acquired jointly with Record Realty on an initial yield of 7.7%.


– Renounceable rights offer to existing shareholders . To finance the acquisition and pay down existing debt, Allco intends to raise S$210mn through a renounceable rights offering to existing shareholders. The rights issue price will be offered at a discount of between 15% and 35% to share price. The acquisition is yield accretive; however, together with the rights issue it will not have a material impact on FY07 DPU.


– Acquisition capacity now at S$1bn. Allco’s gearing post acquisition and rights issues will fall to approx. 23%. This is the lowest gearing level amongst the office exposed S-REITs and equates to an acquisition capacity of approximately S$1bn. We believe this enhances Allco’s ability to expand, and we would expect them to acquire again before year-end.


– Maintain BUY. We maintain our Buy rating on Allco and PO of S$1.93. We expect the share price to rally pre books closure date given the implied value of the rights. We continue to believe that Allco is the most undervalued of the Singapore office plays and remains a top pick within the Singapore REIT sector.

May 29, 2007 AllCo, FCOT No Comments »

ALLCO – Nomura

ALLCO – Nomura remains STRONG BUY with target price $1.61

– Allco has innovatively proposed a renounceable rights issue to facilitate the acquisition of a 50% stake in a Canberra office building. The deal lengthens Allco’s average lease term to 12.8 years. With cashflows underpinned, with think the deal is a precursor to more opportunistic deals in Asia. Our STRONG BUY call stands.

– Allco proposes yield-accretive deal, NAV raised to S$1.61 . Allco has proposed to acquire a 50% stake in a Canberra office building for S$136.5mn, with the deal to be funded via a proposed S$210mn renounceable rights issue. The targeted property is being acquired on a cash yield of 6.0%, with the property leased for 18 years to the Australian federal government agency Centrelink (unlisted). The acquisition will increase the weighted average lease term of the Allco portfolio from 5.4 years to 12.8 years. With the portfolio having a secure cashflow, we believe the deal will enable Allco to pursue more opportunistic acquisitions in Asia. We have analysed the deal and rights issue and believe it to be yield accretive by 5.6% in FY07F, 4.0% in FY08F and 3.8% in FY09F.

Note
1) As the deal has yet to be sealed, we have not incorporated it into our official forecasts, though our analysis is presented in Exhibit 1.
2) Our yield-accretion calculation is based on our estimated theoretical ex-rights price of S$1.24/unit (see Exhibit 2).


– Independent of the proposed acquisition and rights issue, we have raised our SOTP NAV (pre rights) to S$1.61/unit (from S$1.53/unit), on the basis of 1) higher valuations for its Singapore property assets, given recent transactions — we now value them at S$1,404/psf (versus S$1,361/psf previously), and higher translated valuations of the group’s interest in Central Park Perth, given the strength of the Australian dollar.

– Allco to acquire 50% stake in Canberra office for S$136.5mn. Allco has agreed to acquire a 50.0% indirect interest in “the Centrelink Property” for A$108.75mn (S$136.5mn). The property has a projected cash yield of 6%. (Note the reported initial yield of 7.7% and assumed income of A$5.2mn for FY07, and 7.4% yield and assumed income of A$10.1mn for FY08, are accounting yields, due to the long lease revenue being recorded on a straight-line basis). According to the Property Council of Australia, as at end 2006, Canberra had an office vacancy of only 1.8%, the lowest in 16 years. While vacancy is low, supply is on the rise, with an expected 260,000sm due for completion in 2007 and 40,000sm over 2008-09. While the supply/demand balance is expected to shift, the Centrelink Property is to be leased by an Australian Federal government entity, Centrelink, for an initial term of 18 years from 4 July, 2007, protecting Allco’s cashflow from near-term market fluctuations. The lease incorporates a 3% annual rental escalation for the initial 18-year term. The office building has been purpose designed for Centrelink. In addition, Centrelink has an option to renew its lease for two additional consecutive terms of five years each. The Centrelink Property has a land area of approximately 575,869sf (53,500sm) and forms part of the Tuggeranong town centre in Greenway, Canberra. It is located in the western section of the Tuggeranong Town Centre, immediately to the south of the Tuggeranong Office Park, approximately 25km south of the Canberra CBD. According to Allco, the Centrelink Property comprises a contemporary designed, five-storey (basement and four upper levels) commercial office building with an NLA of approximately 430,556sf (40,000sm) and 1,093 car parking bays. The property is due for completion in June 2007.

– Renounceable rights issue to raise S$210mn. Allco is proposing a renounceable underwritten rights issue of new units. It expects to raise gross proceeds of up to S$210.0mn. Allco intends to use S$138.6mn to finance the proposed acquisition in Canberra, and the rest to repay existing debt/partly refinance the existing portfolio. We expect FY07F debt to fall from our current forecast of 0.35x to 0.31x, giving opportunities for more leveraged acquisitions. We estimate the deal to be yield accretive, by 5.6% in FY07F, 4.0% in FY08F and 3.8% in FY09F. Note our yield accretion calculation is based on our estimated theoretical ex-rights price of S$1.24/unit, assuming the rights are issued at a 25% discount to the current share price (the manager has indicated a 15-35% discount) (see Exhibit 2).

– Looking to fund more growth; suggests more acquisitions. Within the circular, the manager is proposing to seek a general mandate for issuing of additional new units in 2007, provided that the number of new units does not exceed 50.0% of the number of units in issue as at 31 December, 2006. The general mandate would allow Allco REIT to issue an additional 247.7mn new units. Assuming these units were issued at a 15% discount to the current share price, Allco would be facilitating the raising of about S$280mn. Given the nature of the mandate sought, it suggests Allco is looking to make further acquisitions in the next six months.

May 29, 2007 AllCo, FCOT No Comments »

AllCo – SGX

ALLCO REIT ANNOUNCES A PROPOSED YIELD ACCRETIVE PROPERTY ACQUISITION AND A RIGHTS ISSUE

KEY HIGHLIGHTS

  • PROPOSED YIELD ACCRETIVE ACQUISITION OF A 50.0% INTEREST IN THE CENTRELINK PROPERTY LOCATED IN CANBERRA, AUSTRALIA FOR S$136.5 MILLION
  • PROPOSED RENOUNCEABLE UNDERWRITTEN RIGHTS ISSUE TO RAISE UP TO S$210.0 MILLION TO ACQUIRE THE CENTRELINK PROPERTY AND TO REPAY DEBT

Singapore, 25 May 2007 – Allco (Singapore) Limited (the “Manager” or “Allco Singapore”), the manager of Allco Commercial Real Estate Investment Trust (“Allco REIT”) (SGX:ALLC) wishes to announce that it has today obtained clearance from the Singapore Exchange Securities Trading Limited (“SGX-ST”) to dispatch a Unitholders’ Circular (the “Circular”) to the Unitholders of Allco REIT. The Circular seeks Unitholders’ approval in relation to:

1) The proposed acquisition by Allco REIT of a 50.0% indirect interest in a new office complex located in Canberra, Australia and which will be leased to the Centrelink National Support Office (“Centrelink”), a statutory agency of the Australian federal government (the “Centrelink Property”);

2) The signing of certain documents relating to the acquisition of the Centrelink Property;

3) The proposed renounceable underwritten rights issue of new units (the “Rights Issue”); and

4) The proposed general mandate for the issue of new units

An Extraordinary General Meeting (“EGM”) of the Unitholders of Allco REIT will be held at The Straits Room, Level 4, The Fullerton Hotel, 1 Fullerton Square, Singapore 049178 on Monday, 11 June 2007 at 09.30 a.m.

SGX1, SGX2

May 25, 2007 AllCo, FCOT No Comments »

AllCo – DBS

Well positioned here and Down Under

FY06 distribution slightly below expections. Allco has reported FY06 results slightly below expectations, delivering DPU of 1.52 cents for 4Q06 and 4.58 cents for the full year which is 5.3% above the REIT manager’s forecast. This translates to annualised distribution yield of 4.8% for FY06. Rental revenue grew 40% y-oy, mainly attributed to higher contributions from Central Park (Perth). Allco also reported higher assessment of revaluation of its asset portfolio which brings about accretion to asset values by S$125.3m or rise of 17.9% to S$823.6m which raised NAV per unit to S$1.17. The increase in portfolio asset value is mainly contributed by revaluation of Central Park by 32.5%, with the rest of the Singapore properties bringing about increase in value averaging 10.6%.

Upward revaluation reflects strength of physical market. The upward valuation of its assets come as no surprise as rental growth provides the lead-up to rise in capital values. This is exemplified by the Perth asset – the long lease secured with Hamersley Iron increased in rentals by 20% to A$360 psm, topped with stepped rental increments. We would expect the strength of the office market to lead to continual trend of rising capital values, thereby increasing Allco’s debt capacity and is well-positioned for acquisitions moving forward.

Asset enhancement delayed. We previously expected retail asset enhancement for China Square Central to commence this year. However, we understand the time line for the enhancement is delayed, with possibly more updates by 3Q07. To recap, China Square Central is under a master lease expiring in 2012 with yearly income support of S$17.55m with Allco attributing 40% of any upside in excess of the rental support. Despite the delay for the asset enhancement, we expect office rental reversions to be strong with 70% expiring in FY07 and FY08 and NPI to exceed the income support by FY08. Leasing activities for maiden acquisition 55 Market Street is on-going and currently about 50% committed.

Maintain Buy, TP upgraded to S$ 1.45 on higher expectations of office rental growth. We continue to be positive on Allco’s rental growth prospects, with assets well leveraged to strong fundamentals in the Singapore and Australian office markets. With 70% of China Square Central’s office leases up for renewal in the next two years, Allco is poised to benefit from the rising Singapore office market. We are maintaining our Buy recommendation for Allco with raised target price of S$ 1.45 after raising our office rental assumptions.

February 12, 2007 AllCo, FCOT No Comments »

AllCo – Phillip

High Yielding Office REIT

Allco REIT (“Allco”) is the first real estate investment trust (“REIT”) listed on the SGX (30th Mar 06) with retail and commercial assets located in Singapore and Australia. Allco’s investment policy focuses on high quality office and retail properties across the Asia-Pacific region.

High quality and well located commercial properties. Allco’s initial portfolio comprises 100% direct interest in China Square Central, 50% indirect interest in Central Park (Perth) and an investment of 20% interest in AWPF. The total initial portfolio of Allco comprises 3 properties with approximately 74,282 sq m of net lettable area as well as an investment of S$55.5 m in AWPF. The total appraised value of the whole portfolio (excluding 55 Market Street) amounts to approximately S$624.6m.

Allco’s first acquistion after listing (55 Market Street) has been an excellent investment, tapping into the booming office property market. We believe that Allco has a good acquisition strategy that can act quickly to benefit from opportunities.

Strengthening of property market in Singapore and Australia. Strong demand and absorption are expected in both Singapore and Australia property markets. Rental rates are expected to perform better with lower vacancy rate for the next six months. This positive news brings in continuous strong interest in the REIT market as well as higher revalued properties.

Tax efficient structure. Allco has shown its creativity in maximizing distribution through a different approach other than asset enhancement or rental growth. Allco’s recent internal restructuring is estimated to increase distribution payout by approximately S$2m per annum for FY07 and FY08, increasing DPU by approximately 7%.

Stable and secure distribution. Most of Allco’s lease agreements have long lease term creating income stability. 79.3% of the leases will only expire beyond 2008 as shown in Fig 5. At the current price of S$1.13, Allco is trading at a yield of 5.22%, way above the office average yield of 3.83% and a price to net asset value of 1.39x.

Valuation. Our fair value for Allco is S$1.27. This translates to a 4.61% yield and a price to net asset value of 1.35x for FY06F; a 5.53% yield and a price to net asset value of 1.39x for FY07F. In our relative comparison, our fair value is above the average S-REITs/office yield and below the average price to net asset value. At the current price of S$1.13, we recommend a Buy for Allco with a 12% return.

January 11, 2007 AllCo, FCOT No Comments »