Frasers Commercial ( formerly Allco REIT )

[winston]

From Phillips:-

Allco Commercial REIT (Allco) reported results for the quarter ended 31st Mar 2008 that were generally boosted by acquisitions made in 2007 compared to the corresponding period last year. Gross revenue for the period is $28.4 million (+132.1% YoY, +6.7% QoQ), net property income is $22.1 million (+115.9% YoY,+7.1% QoQ) and distributable income is $11.3 million (+42.4% YoY, -27.2% QoQ).

However DPU remains flat at 1.60 cents due to the enlarged share base from the rights issue conducted in June 2007 as well as higher finance expenses. High finance expenses eating into DPU. Finance expenses are substantially higher
(+141.1% Yoy, +26.6% QoQ) as the acquisitions are essentially finance by debt.

Going forward, we expect borrowing expenses to continue to be the main drag on distributable income due to the higher margin of the refinancing terms. Growth strategy. Management attention will be focused on asset enhancement initiatives (AEI) on its Singapore properties. It highlighted a series of enhancement works on the Keypoint building.

Phase 1 enhancement is expected to be completed around November 2008 and phase 2 will be around May 2009. Recent rental activity has seen leases signed at $6.39, which is an increase of 236% over the existing rent of $1.90. Current average office rental is around $3.28. Management expects to sign rental rates of $5-$8 in near-term renewals or take-ups. Almost 86% of leases are expiring in 2008 and 2009.

Divestment of Australia properties. Further to the strategic review of its portfolio, Allco has plan to divest its Australia properties, namely Central Park and expects to fully redeem its investment of AWPF. Proceeds will be used to lower leverage to 30%. Currently the gearing of Allco is 44.8%. Income guarantee from AFGL. Allco will be receiving arrears of A$1.58 million for the period of 1 July 2007 to 31 Dec 2007 in relation to the income support deed of Central Park from Allco Finance Group Limited. There is also a potential claim of A$6.39 million for the period of 1 Jan 2008 to 26 Mar 2009.

Valuation and recommendation. We revise our estimates slightly to account for the higher rental reversions of the Keypoint building as well as higher finance expenses. We also wrote back the income support of A$1.58 million into our net income forecast for FY08. We have a FY08 DPU forecast of 7.35 cents, which translates to a yield of 8.9%. Fair value is lowered slightly from $1.07 to $1.05. We maintain our buy recommendation for Allco. Our valuation hinges on the outcome of the sale of Central Park and we will revisit our valuation pending further announcement.

Looking for a chance to buy some more..

[tankie]

IMO, the recent Q1 results were very disappointing, despite their DPU 1.6ct exceeding their forecast of 1.5ct. This is coming fm a strong Q407 DPU of 2.2ct. It's no longer a yield play (Q108 7.689% @ $0.835 ; 10.5% - Q407 DPU 2.2ct ; 8.852% - 2H DPU 3.74ct) for me and I hv reclassified it as an Asset play (NAV $1.42 - big discount at $0.835).

Going fwd, their selling of all their Aussie assets will potentially raise aro' S$0.88/share, depending on exchange rate and how close to valuations it's sold at. This will likely be used to reduce their debts (gearing is now 44.8%) and the balance redeployed for an Asia focussed acquisitions. But, they hv also stated that this year, they'll be more focussed on organic growth eg. KeyPoint upgrading.

My current thots',

1) They only appointed their sales agents for Aussie assets in May, so no impact for 2H08 results
2) It's highly unlikely that they'll return excess cash fm sale of Aussie assets, perhaps at most a one time special div in 2H08
3) Selling Aussie assets and reducing debts means lesser EPU which means lower DPU ie yield will drop further

In conclusion, I'm expecting short term pain (lower yield) for longer term gain as the sales proceeds fm the sale of Aussie assets MAY result in,

a) Better ratings fm Moodys = Lower cost of borrowing
b) Yield accretive acquisitions
c) Better focus on organic growth = Higher rentals + Better valuations for existing assets

Having said the above, there's always execution risk and Aussie assets may still fetch a price below latest valuations. The long term pain may also last a few Qs. As I'm currently more focussed on high yield stocks, I hv reduced my exposure to Allco considerably. Note that the share price MAY still go up if there're enuff people who buys cos' of it's large discount to NAV and perhaps, expectations of a large special div.

Disclaimer - Not a recommendation. Pls do make your own buy/sell/hold/no action decision based on your own homework and risk appetite.

PS. Yohoo... Is mojo aro'? mojo has much better data on Allco and gives much better comments!

[winston]

Hi tankie,

Nice to see you here. I always like your post.

Hmm.... NAV play - always have to wait a long time eg. Stamford Land.

If NAV also drops due to a global recession, then the wait will have to be longer.

Take care,
Winston

P/S How about you invite mojo and some of your other friends over? I think we have some content now and have sorted out some of the technical issues ( grandrake, the best ! )

[blid2def]

OOT: Yes, tankie's cute dog is here! Welcome!

Okay, paiseh - back to topic.

[LenaHuat]

Hello tankie
Welcome! Welcome!
Now waiting for mojo to show up.

[mojo_]

Howdy folks! Sorry I hadn't been logging into that other forum, so didn't know the existence of this new one - congrats to GD and his instigators! Great job and very timely... nice to see all the good folks over here.

Tankie seems to have the misperception I know more about Allco I take some effort to dig into it but it is probably as much as some over here. I was disappointed by the 1Q08 results too but note that 4Q07 results was way too strong and far over my expectation. I suspect some accounting "refinements" to be the reason which is probably indulged in by a number of other counters too.

The positives for me are that mgt is planning to reduce debt and focus on organic growth esp on Keypoint. If they manage to sell off the Aussie properties, I suspect other than using proceeds to reduce debt, they may use part of it to acquire some Asian properties (Malaysia? Allco has some activities there) in order to get dpu back up (just my speculation only). The 2 big Sgp properties (China Sq and Keypt) are adjacent to upcoming MRT stations so their long term value and rentals may see good upside potential.

Their plans look good but it will all hinge on the execution. They will also have to restore their credibility which has been badly tainted by the parent's fallout down under. My feel is that it may take some time but the upside potential is there. Of course if they sell the reit management to a reputable party, I think the upside will come much faster (with the current big discount to NAV become smaller) and that is the unknown. Like Tankie, I have reduced my position considerably not because I fear downside (and the yield is still very decent vs other office reits) but more because I think the upside may take some time and I have found something else more attractive... or seemingly so hope i don't regret it later

ps: hey can use more than 3 smileys here

[lioninvestor]

Yes, I think there's some NAV play...parent company also looking to unlock some cash for themselves.

[winston]

Hi lioninvestor .... Welcome !

Vested. The following are some notes and Target Price that I've:-
1) Capital Selling - need to check SGX website on the latest transactions
2) DBS 1.23 May 7 Mar 25 from 1.54 Mar 11 from 1.56 Feb 5 from 1.65 Jan 3 Oct 8 from 1.45 Feb 13 from 0.99 Sep 15 3) Phillips 1.05 May 7 from 1.07 Mar 24 from 1.60 Oct 31 from 1.68 oct 9 Aug 14 from 1.27 Jan 12
4) Merrill 1.93 Feb 7
5) JPM 1.44 May 9 from 1.32
6) Nomura 1.66 Oct 31

Take care,
Winston

[winston]

Vested.

Just saw Capital Group increasing their position from 8.3831% to 9.0400%

[mantra]

Congrats on setting up this site. I must admit, its far more refreshing to read good ideas/debates rather than trumpet blowing banter and blather about UK endowments, mortgage restructuring, etc.

Re: Allco Reit. My view is that Allco Finance's (AF) 17% stake in Allco REIT is on the block and will be sold within the next few months. There are must definately be interested buyers, as AF is a distressed seller - it has to raise a couple hundred millon more Aussie dollars to appease its bankers. It recently sold its stake in a US wind farm which is being utilised to moderate debt.

If the Aussie properties are sold before an change in ownership then I would expect a combination of debt reduction and sharebuyback to materialise. The best investment Allco Reit's mgt can make is buying back its own stock at a 40% dusc to NAV, arguably.

If a new major shareholder comes on board, with a stronger balance sheet, then that should result in a ratings review.

The next data point of interest is going to be the half year results coming out in 4-5 weeks time.