Category: AllCo
AllCo – BT
Allco Reit could divest its Aussie assets
ALLCO Commercial Real Estate Investment Trust (Allco Reit) could divest its interest in its Australian properties which are currently valued at A$482.9 million (S$619.3 million).
This includes its 50 per cent interests in Central Park in Perth and Centrelink Headquarters in Canberra. Allco Reit is also invested in Allco Wholesale Property Fund which in turn has interests in several properties in Sydney.
In a statement released on Sunday, the Reit manager, Allco Singapore, said: ‘In the ordinary course of managing the business of Allco Reit, the manager continually evaluates its purchase, hold and divestment options in respect of its assets with a view to maximising unitholder value.’
The statement was released after Australian media got wind of the potential divestment and reported it on Friday.
When contacted, Allco Singapore chief executive and managing director Nicholas McGrath reiterated statements made in its press release that Allco Reit has not entered into any ‘binding arrangements with respect to the sale of any of these properties’.
If the divestment takes place, Mr McGrath said, the capital would be redeployed to higher-growth areas in Singapore and other Asian cities.
He also said that some of this capital could go towards reducing its leverage and repay debts.
Apart from Singapore, Allco Reit has assets in Osaka and Tokyo.
Its three key properties – China Square Central and 55 Market Street in Singapore, and Central Park in Perth – had a combined value at the end of December of $1.13 billion, based on the latest revaluation.
Allco Singapore said the Reit is trading at a substantial discount to its reported net asset value and the strategic review to study the divestment of its Australian assets is ‘designed to explore the means by which this gap may potentially be closed’.
As at Dec 31, 2007, Allco Reit’s net asset value was $1.45 (post payment of 2H2007 distribution). The Reit was last traded at 80 cents per unit.
Asked if there was a possibility that Allco Reit could itself be acquired, Mr McGrath said he was not in a position to answer.
‘If an offer was made to the unit-holders that was attractive, it would be up to the unit-holders to decide,’ he said.
Allco – SGX
Background
As previously announced on 1 February 2008, Allco REIT’s strategic focus in 2008 is as follows:
1) Execution on asset plans to drive asset values and organic growth; and
2) Strategic portfolio management with a view to redeploying capital to higher growth assets.
The Manager is in the process of undertaking a review of the entire asset portfolio of Allco REIT with the objective of enhancing value for Unitholders. The Manager’s view is that the current Allco REIT unit price is not reflective of the underlying value of Allco REIT’s portfolio. Accordingly, the review is being undertaken in the context of the strong underlying property fundamentals within the Allco REIT portfolio. Allco REIT is trading at a substantial discount to its reported net asset value and the strategic review is designed to explore the means by which this gap may potentially be closed. Allco REIT’s net asset value has increased from S$0.93 per Unit as at the listing date of 30 March 2006 to S$1.451 per Unit as at 31 December 2007.
Australian assets
In the ordinary course of managing the business of Allco REIT, the Manager continually evaluates its purchase, hold and divestment options in respect of its assets with a view to maximising unitholder value. To this end and as reported in the Australian media on 7 March 2008, the Manager is currently investigating the potential divestment of Allco REIT’s interests in its Australian properties. Allco REIT has not entered into any binding arrangements with respect to the sale of any of these properties.
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SREITs – BT
MacarthurCook, Cambridge and Allco seen as potential takeover targets
CAMBRIDGE Industrial Trust, MacarthurCook Industrial Reit and Allco Commercial Reit are among potential takeover targets among Singapore real estate investment trusts (S-Reits), says Goldman Sachs in a report this week.
‘We believe that Reits with relatively smaller market caps, fragmented shareholdings or larger shareholders which may be open to exiting their stakes, and relatively high yields compared with sector peers are likely takeover targets,’ the report authored by analyst Leslie Yee said.
The current S-Reit climate, with disparity in distribution yields at which Reits in the same asset class are currently trading on the stock market, provides fertile ground for merger and acquisition (M&A) activities, the bank contends.
‘Hypothetically, a Reit trading at a lower yield that acquires a Reit trading at a higher yield, would be making an accretive acquisition, if the acquirer trades at the same yield post-acquisition,’ it added.
It may be easier for S-Reits to grow by acquiring other Reits as the traditional method of growing – through the acquisition of physical assets – has become more difficult. This is because the slump in S-Reit prices on the stock market has raised their distribution yields, making it harder for them to make yield-accretive acquisitions of properties.
Goldman Sachs said other factors that have brought forward M&A as a theme for the S-Reit space include the prices of certain Reits trading below net asset value, increasing openness of management teams discussing the possibility of M&A, and trade sales.
In mid-February, Macquarie MEAG Prime Reit’s (MMP Reit’s) manager announced a strategic review to enhance value for unitholders following the receipt of unsolicited bids made to Macquarie Real Estate, which holds a 26 per cent interest in MMP Reit.
‘We think this strategic review can lead among others to an outright sale of the Reit or sale of underlying assets on a piecemeal basis. There are precedents among the Australian Reits of acquisitions of entire Reits and piecemeal divestments of their properties. We see either of these actions as among the many ways in which Reits trading below book value can help realise book value,’ Goldman said.
‘We believe that MMP Reit’s efforts could cause shareholders of other Reits trading below NAV to seriously consider how best to unlock value. We note that Reits in mature markets like Australia divest assets on a piecemeal basis to optimise their portfolio, and we do not rule out S-Reits divesting individual assets to reconfigure their portfolios or even pay special dividends,’ it added.
‘Besides Reits’ takeovers, another possibility is the takeover of Reit managers. We note ARA Asset Management has stated it is keen to acquire other Reit managers,’ the report said.
The M&A theme will be positive for S-Reits. For large-cap Reits which trade at relatively low yields, M&A will create another avenue for growth. For smaller Reits trading at relatively high yields, investors should be able to cash in on premiums paid to buy out their respective Reits. ‘We expect the focusing of M&A as a theme by investors to result in narrowing of discounts to RNAV,’ Goldman said.
It also recommends investors to be ‘overweight’ on S-Reits given the defensive nature of these instruments and their relatively high distribution yields.
‘Based on our stress tests, we are comfortable that downside risk to our revised 12-month target prices is capped at about 14 per cent on bear case scenarios which we do not expect to materialise. In a flight to quality environment, we favour well-managed big-cap names, with debt capacity to fund acquisition growth, and which trade at discount to RNAV and show strong near-term organic growth.’
Goldman has upgraded office landlord CapitaCommercial Trust from ‘neutral’ to ‘buy’ and added it to its Conviction List of top ‘buy’ calls. It has also upgraded Ascendas Reit from ‘sell’ to ‘neutral’. The bank also has ‘buy’ recommendations for CDL Hospitality Trusts, K-Reit Asia and Suntec Reit. It has downgraded CapitaMall Trust from ‘buy’ to ‘neutral’, and MMP Reit from ‘neutral’ to ‘sell’.
AllCo – DBS
Growing from within
Story: Allco reported a good set of FY07 results that are slightly above our expectations, gross revenues increased 115.7% yoy to S$75.2m. Net property income gained 113.6% yoy to S$61.4. DPU was 6.73 cts, +46.9% yoy.
Point: The results are mainly due to positive rental reversions from its assets in FY07 and contributions from its new acquisitions. Of the total increase in gross revenues, 59% was organic in nature. Moving forward, we expect growth to be more organic as Allco look to benefit from the buoyant demand for office in Singapore with 31% and 15.3% of its NLA expiring in FY08 and FY09. In addition, we expect contributions in FY08 from its withdrawal of 17.2% stake(8.2m units) in AWPF at A$1.1012 per unit, compared to A$1.0 p.u. at initial investment.
Relevance: Currently trading at more than 100% below its NTA of S$1.49 and at 10% dividend FY08 dividend yield, we continue to like Allco and maintain our BUY recommendation at a target price of S$1.56 based on DCF. (previously S$1.65)
AllCo – UOBKH
Triple Witching
Allco Commercial REIT invests in real estate in the office and retail sectors. It owns a portfolio of high quality commercial properties in Singapore, Australia and Japan. Allco Commercial is managed by Allco (Singapore) Limited, a subsidiary within Allco Finance Group (AFG).
Collateral damage from Allco Finance Group. Two margin lenders to Allco Principals Investments (API), Tricom Equities and National Australian Bank, have sold 21.9m AFG shares on 23 Jan 08. API is a substantial shareholder at AFG and has reduced its stake in AFG from 13.2% to 6.5% due to the margin selling. API is currently in a dispute with Tricom Equities involving procedures surrounding the margin call. The heavy wave of selling resulted in a 42.8% plunge in AFG’s share price in Jan 08.
AFG is an integrated financial services group providing in asset origination, funds creation and funds management. It specialises in structured asset finance, funds management and debt funding activities, principally in aviation, property, rail, shipping, small ticket equipment, infrastructure and financial assets. AFG is highly leveraged with total debt/equity ratio at 2.81x at Jun 07. It has loan assets of A$4b compared to shareholders’ fund of only A$2.2b. AFG has a 15.8% stake in Allco Commercial REIT.
Downgrade by Moody’s. Moody’s Investors Service has downgraded Allco Commercial REIT’s corporate family rating one level from Baa3 to Ba1 on 31 Jan 08. Moody’s has also placed the rating on review. Ba1 is a speculative grade (junk status). Allco Commercial REIT’s gearing ratio is 47% at Dec 07. The downgrade by Moody’s raises the possibility that Allco Commercial REIT may have to issue new units via placement or rights issue to reduce gearing to below 35%, even at current depressed share price. The company has previously decided not to proceed with a non-renounceable preferential offering of up to 175.2m new units in Nov 07 due to poor market conditions.
Reliance on short-term borrowings. Allco REIT has total borrowings of S$882.2m, of which a substantial S$615.9m has to be repaid within a year. The company could face difficulty in raising funds due to turmoil in the credit market and the rating downgrade by Moody’s. Cost of borrowings is likely to increase, which will have an adverse impact on earnings growth.
Allco Commercial REIT has corrected 22.4% YTD. The company declared DPU of 2.21 cents for 4Q07. This represents annualised distribution yield of 12.7%. Annualised distribution yield for CapitaCommercial, K-REIT Asia and Suntec REIT are much lower at 4.4%, 6.2% and 7.5% respectively.