Category: FCOT
AllCo – SGX
Asset Valuation of Allco REIT Properties
The Board of Directors of Allco (Singapore) Limited (the “Manager” or “Allco Singapore”), the manager of Allco Commercial Real Estate Investment Trust (“Allco REIT”) (SGX:ALLC) announces that independent valuations1 of the China Square Central, 55 Market Street, Central Park (Perth) and Centrelink (Canberra)2 properties (collectively, the “Properties”) have been completed.
The revaluations have resulted in an increase of S$182.0 million (22.1%) over the valuations of the Properties3 as disclosed in the 2006 Audited Consolidated Financial Statements of Allco REIT as at 31 December 2006. The revaluations have been completed in accordance with the relevant accounting standard, Financial Reporting Standard 40 Investment Property, and the Property Funds Guidelines.
The valuation of each Singapore property was conducted by Savills (Singapore) Pte Ltd and the valuation of Central Park (Perth) was conducted by CB Richard Ellis Pty Ltd. The valuations of Centrelink (Canberra) were conducted by both CB Richard Ellis Pty Ltd and Colliers International Consultancy and Valuation Pty Limited.
The valuation details are as follows:
Source : SGX
Allco – SGX
Where capitalised terms are used in this announcement and not otherwise defined, such capitalised terms shall bear the same meanings as ascribed to them in the announcements made by Allco Commercial Real Estate Investment Trust (“Allco REIT”) on 25 May 2007 and 26 June 2007 and the Circular dated 26 June 2007.
1. RESULTS OF THE RIGHTS ISSUE
1.1 Level of Subscription
Details of the valid acceptances and excess applications for Rights Units received are as follows:
(i) valid acceptances were received for a total of 193,536,712 Rights Units, representing approximately 97.4% of the total number of Rights Units available under the Rights Issue; and
(ii) excess applications were received for a total of 40,442,155 Rights Units, representing approximately 20.3% of the total number of Rights Units available under the Rights Issue (“Excess Rights Units Applications”).
Allco Singapore Investments Pte. Ltd. (“ASI”), a Substantial Unitholder, accepted its Rights Entitlement of 29,400,000 Rights Units. ASI did not apply for any Excess Rights Units.
Based on the total number of Units in issue as at the Books Closure Date, 198,749,242 Rights Units will be issued pursuant to the Rights Issue.
1.2 Allocation of Rights Units for Excess Rights Units Applications
The Rights Units represented by the provisional allotments of:
(i) Eligible Unitholders who did not renounce or trade their Rights Entitlements and
did not accept all or part of their Rights Entitlements;
(ii) Ineligible Unitholders; and/or
(iii) Purchasers who did not, for any reason, accept the Rights Entitlements, and disregarded fractions of Rights Units, amounting in aggregate to 5,212,530 Rights Units, will be used to satisfy Excess Rights Units Applications or otherwise dealt with in such manner as the Directors may, in their absolute discretion, deem fit in the interests of Allco REIT, provided that in the allotment of Excess Rights Units, preference will be given to the rounding of odd lots, and Substantial Unitholders and Directors will rank last in priority.
2. ALLOTMENT OF RIGHTS UNITS
CDP will send notification letters, on or about 23 July 2007, to Eligible Unitholders with valid acceptances and successful applications for Excess Rights Units by ordinary post, at their own risk, to their mailing addresses in Singapore as maintained with CDP, stating the number of Rights Units that have been credited to their Securities Accounts.
In relation to any void acceptances of Rights Units or any unsuccessful applications for Excess Rights Units, all monies received in connection therewith will be returned by CDP on behalf of Allco REIT to the Eligible Unitholders, their renouncees or the Purchasers, as the case may be, without interest or any share of revenue or other benefit arising therefrom, within fourteen (14) days after the Closing Date, by crediting their accounts with the relevant Participating Banks (where acceptance is through Electronic Application) or by ordinary post (where acceptance and/or application is through CDP) and at the Eligible Unitholders’ or their renouncees’ or the Purchasers’ own risk.
3. CLOSING AND LISTING
3.1 Closing
The Manager expects that 198,749,242 Rights Units will be issued pursuant to the Rights Issue on or about 20 July 2007.
3.2 Listing and Quotation
The Manager further expects that the Rights Units will be listed and quoted on the Official List of the SGX-ST with effect from 9.00 a.m. on or about 23 July 2007.
The Manager wishes to take this opportunity to thank Unitholders for their support in ensuring the successful completion of the Rights Issue.
ALLCO – DBS
– Point Allco has strong office income flows from China Square Central and Central Park (Perth), on account of rising office rentals in Singapore and the resource industry boom in Perth. After its first acquisition of 55 Market Street, Allco has recently acquired a 50% stake in Centrelink Property in Canberra which brings Allco back to a 5050 asset exposure in both Singapore and Australian markets.
– Relevance Following the rights issue by Allco to fund the Centrelink property acquisition and 55 Market Street, we maintain our Buy recommendation and accordingly adjust our DCF derived target price to S$ 1.39.
– Second acquisition – The Centrelink Property in Canberra. Allco has just acquired a 50% stake in Centrelink Property, for a consideration of A$108.75m with projected FY08 property yield of 7.4%. This was announced together with the proposed renounceable rights issue to fund the acquisition. The asset is a new “Grade A” office complex with NLA of 430,556 sf, strategically located within the core of the Tuggeranong Town Centre in Canberra. This asset would tie in a long lease of 18 years to anchor tenant, the Centrelink National Support Office (state agency of the Australian Federal Government), with organic growth of 3% per annum incorporated into the acquisition by annual stepped rent provisions.
– Rights issue raises debt capacity for acquisitions. With the acquisition, the portfolio now crosses the billion $ mark to S$1,016.6m. With the rights issue tied back-to-back to the Centrelink Property acquisition, gearing is now reduced from 33% to 23% which unlocks more gearing headroom for acquisitions. Assuming the maximum gearing cap of 60% in line with Singapore Property Fund Guidelines, this would provide debt capacity of approximately another S$1bn for acquisitions to be fully funded by debt.
– Ex-rights price target of S$ 1.39. Previously, we had factored in the 55 Market Street acquisition prior to the rights issue funded by debt, which is accretive and higher than the initial estimated 5% cap rate upon acquisition. Together with the Centrelink acquisition, Allco would par down debt associated with the 55 Market Street acquisition by a renounceable rights issue which raises proceeds of about S$210m. Following Allco going ex-rights, we maintain our Buy recommendation and accordingly adjust our DCF derived target price to S$ 1.39.
ALLCO – Nomura
– Amid strong office reversions, Allco is successfully using the current demand cycle to enhance cashflow quality by both lengthening leases and negotiating annual step-up rental reviews. With cashflows underpinned, we think Allco is set to pursue further opportunistic acquisitions. We reiterate our STRONG BUY call.
– Allco NAV adjusted to reflect rights issue. We have adjusted our fair value for Allco to S$1.54/share, to account for the issue of 198.7mn new rights units at a 19.9% discount to the reference price of S$1.30/unit (our pre-rights NAV was S$1.73/unit). Exhibits 1-3 reconcile our NAV adjustments. While most REITs have pursued placements at modest discounts, Allco has adopted the more novel funding approach to reward long-term unit-holders. Following the issue of the rights, we forecast FY07 gearing will fall to 0.31x (from 0.35x), which we think will give scope for further leveraged, yield-accretive acquisitions. On our estimates, Allco could invest a further S$275mn (100% debt funded) and still keep gearing below 0.45x. An acquisition delivering a 100-150bps positive carry could potentially lift DPU by 5.9-8.8% in FY08. Management appears to be closely looking at acquisitive possibilities in the Japanese market.
– NAEF: management upbeat on prospects . In its recent presentation at the Nomura Asia Equity Forum (NAEF), management was upbeat on the REIT’s prospects, noting:
* Office renewals in China Square (Central) had broached S$10.00/psf pm, versus current passing rents of S$4.50/psf pm. Management concurred with our view that the REIT should start benefiting from the profit-share provisions in the master lease by mid-FY08;
* 55 Market Street has been fully let, achieving rents of S$7.75/psf pm on average, well above the initial feasibility expectation of S$5.20/psf pm; and
* Central Park Perth continues to benefit from a supply/demand imbalance, underpinning strong reversions. According to CBRE Richard Ellis, 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 as a consequence of low vacancy (below 1% over the next two years) and the lack of supply no significant supply is scheduled for completion until 2009F.
– Asset acquisition recap: Centrelink property in Canberra. . Allco will 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). The 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, and has an NLA of approximately 40,000sm and 1,093 car parking bays. 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 lease structure will underpin surety of cashflow. – More capital raising / more acquisitions. The manager, as part of its rights issue, received approval for a general mandate for the issuance 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 potentially issue an additional 247.7mn new units, indicating the potential to raise in excess of S$250mn. Given the nature of the mandate sought, it suggests Allco is looking to make further acquisitions in the next six months, with Japan, in our view, a possible target.
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.)