Frasers Centrepoint in $180m Allco deal

Allco Commercial Reit to be renamed Frasers Commercial Trust

IN what appears to be a sign of consolidation in the Singapore real estate investment trust (Reit) market, Frasers Centrepoint (FC) is buying 17.7 per cent of Allco Commercial Reit and 100 per cent of the Reit’s manager, Allco Singapore, for a total consideration of $180 million.

FC, a subsidiary of Fraser and Neave (F&N), had planned to list a commercial Reit called Frasers Commercial Trust (FCT) and recently received in-principle listing approval from Singapore Exchange. With the deal, FC will scrap the listing plan and rename Allco Reit as FCT.

Allco Finance Group, the Australian holding company of Allco Singapore, is said to be selling its stake to repay debt. For $104.3 million, Allco Finance and two of its subsidiaries will sell 125.65 million Allco Reit units to FC for 83 cents each. The unit price is a 42.4 per cent discount to the Reit’s net asset value per unit and a 16.9 per cent premium to its last-traded price of 71 cents on Monday.

FC will also gain control of Allco Singapore by taking on all of its issued ordinary and preference shares for $75.7 million. The entire deal could be completed by Aug 6.

According to market watchers, Allco Finance ran a limited auction that aroused significant interest. As one observer put it: ‘This would represent an immediate platform for a fund manager or property developer wanting to have a ready-made Reit.’

An FC spokesman told BT: ‘Such an opportunity to acquire good quality commercial properties at an attractive valuation level is rare.’ Allco Reit’s property portfolio spans Singapore, Australia and Japan, and the deal will help FC gain $2 billion of commercial assets under management.

‘Current Allco Reit unit holders will benefit from tapping into the professional management expertise, regional footprint and resources of one of Singapore’s largest property companies,’ FC chief executive Lim Ee Seng said in a statement yesterday.

Allco Reit will be able to leverage on a ready pipeline of commercial assets owned by FC. These comprise Alexandra Point, Alexandra Technopark and the office and ancillary retail components of Valley Point – properties initially set aside for the planned listing of FCT.

‘Depending on prevailing market conditions and subject to the approval of shareholders, FC intends to inject its commercial assets within six to 18 months of completion of the acquisition,’ an FC spokesman told BT.

Mr Lim noted: ‘We have clear plans to bolster and strengthen the financial position of Allco Reit.’ FC ‘will be able to assist Allco Reit in negotiating the refinancing of its existing loans, which will bring clear benefits to Allco Reit’s unit holders’. Details will be announced at the appropriate time, the FC spokesman said.

FC expects to use internal cash resources and existing credit facilities to fund the $180 million deal. The acquisition is not expected to have a material impact on the net asset value or pre-tax net profit of F&N or its subsidiaries for the year ending Sept 30, 2008.

Credit Suisse Singapore was FC’s financial adviser on the acquisition.

News of the deal drove Allco Reit’s units up 0.7 per cent or 0.5 cents to end at 71.5 cents yesterday. F&N shares, on the other hand, closed 0.9 per cent or four cents down at $4.39.

A Sweet & Sour Deal

SINGAPORE – Singapore conglomerate Fraser and Neave (F&N) said on Tuesday its property unit has bought 17.7 per cent of Allco Commercial Reit and all of the real estate investment trust’s manager for $180 million (US$132 million).

The change of the Tide…. F&N Buys into Allco


Story: Allco REIT and F&N separately have announced that Allco Finance Group Limited (AFGL) and two of its indirect wholly-owned subsidiaries, Allco Singapore Holdings Limited (ASHL) and Allco Singapore Investments Pte. Ltd. (ASIPL) have entered into a S&P Agreement with Frasers Centrepoint Limited (FCL) for the sale of:

i) Allco Finance’s Group 17.7% interest in Allco REIT (125.6m shares at the consideration of $0.83), amounting to S$104.3m; and,

ii) the issued ordinary and preference shares in Allco Singapore ( S$75m), the REIT manager of Allco REIT.

Completion of sale on 6th August ’08

The sale is expected to be completed on 6th Aug 08 and is subject to the following conditions being fulfilled:

(a) the Monetary Authority of Singapore not raising an objection to FCL acquiring Allco Singapore;

(b) receipt of Australian Foreign Investment Review Board’s approval for (or no-objection to) the Sale;

(c) waiver of certain covenants under Allco REIT’s financial indebtedness to Commonwealth Bank of Australia;

(d) no breach of certain representations, warranties and undertakings given by Allco Group under the Agreement; and

(e) no occurrence of certain events which have a material adverse effect on Allco REIT or Allco Singapore and their respective subsidiaries.
(From announcement)

Income support arrangements with API ceased

The liability of Allco Finance Group Limited to make payments under the Income support arrangements for the Central Park Asset, Perth will terminate and be restricted to what can be recovered in the administration of Allco Principals Investments Pty Limited (Receiver and Manager appointed), which is in the range of A$1m.

Overall, we think the deal looks to be a win-win situation for both parties. We highlight our views from both Allco REIT and F&N’s perspective in the 2 segments separately.

We maintain our Buy recommendation at TP S$1.23,representing 73% upside.

A) Allco REIT

Point: Deal Neutral to Slightly Positive In terms of valuation, the price of $0.83 per unit that FCL is getting Allco REIT translates to a c. 40% discount to its current book NAV (adjusted for write down in property values of Centrelink in Canberra and Cosmo Plaza in Osaka) at about S$1.40; and, ii) a 17% premiun to the last closing price of $0.71 as at 07/07/08.

From Allco shareholders’ point of view, this announcement is neutral to slightly positive given that:

i) this transaction provides visibility to the strategic direction of the REIT post sale by removing the uncertainty of the REIT’s positioning within the Allco Group in view of the latter’s restructuring activities. The deal also provides backing by a globally recognised conglomerate;

ii) prospect of further acquisition growth given that F&N has a ready pipeline of assets worth c$700m that could be injected into the REIT as well as the possibility of leveraging on FCL’s existing business networks and established relationships in the Asia Pacific region;

iii) The REIT manager is bought out, the poison pill of cS$20m payable is not effected.

iv) However, with FCL’s pipelined assets, the REIT will have exposure to different market segments such as office and high-tech business parks space. Hence, any valuation premium that it could enjoy as a “pure play” REIT could be capped.

Relevance: No change to our TP and recommendation. The REIT is currently trading at an attractive c.9.0% FY08-FY09 DPU yield and at 0.6x P/BV. We remain optimistic on the opportunities available for the REIT post the sale with the entry of a globally recognised conglomerate. .

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.