Allco Commercial prices first pan-Asian REIT

Geographically-diversified assets receive mixed response from investors.
Allco Commercial Real Estate Investment Trust has priced its REIT in the middle of the indicated range at S$1 per unit, which fixed the total deal size at S$495 million ($305 million).

The vehicle comprises office and retail properties in Singapore and Australia with a combined total asset value of about S$680 million. This makes it unique among Asian REITs in terms of geographical diversification û a fact that some investors said made it more attractive.

However, one observer noted that some Singapore-based investors didnÆt feel familiar enough with the Australian market and the sponsor of the REIT to commit to this hybrid offering, and some no doubt chose to wait instead for the pipeline of at least four REITs backed by Singaporean assets that are expected this year.

According to people close to the offering, the portion of the deal open to institutional investors other than the sponsor and cornerstones was about 2.5 times covered when it closed on Tuesday (March 21).

Credit Suisse was sole global coordinator and joint bookrunner together with DBS for the deal, which marked the largest IPO in the Singapore market so far this year. Macquarie Securities and UOB acted as sub-underwriters.

Allco Commercial Reit offered 495 million units in a price range between S$0.98 and S$1.02. About 15% of the units went to Allco Finance, a private Australian fund manager which is also the sponsor of the REIT, while about 19.4% were bought by three cornerstone investors.

Another 5% has been earmarked for retail investors in a public offering that will be open between March 24 and 28.

The rest of the units were allocated among approximately 75 participating institiutional investors. Just under half of the deal was believed to have been bought by Asian accounts, with European investors taking 20% and offshore US investors the remaining 30%.

There is a 10% greenshoe that will come out of the sponsorÆs stake if exercised.

Based on the final price, Allco REIT offers a gross yield of 6.4% for 2006, which compares with an average 5.3% for other Singapore-listed REITs, some of which currently pay less than 4%.
On a net basis, this will translate into a yield of 5.7% for foreign investors and 5.2% for Singapore institutions which are subject to a larger witholding tax. Retail investors will receive an annualized cash distribution yield of 5.8%.

The trust is committed to pay out 100% of its distributable income, which is projected to be about S$24 million in 2006 and increase by 25% to about S$30 million in 2007.

The initial portfolio is made up of a 100% stake in a grade-A office building in SingaporeÆs Central Business District, called China Square Central; a 50% stake in the tallest office tower in Perth, called Central Park; and a 15% stake in the Allco Wholesale Property Fund which owns three properties in Sydney and Melbourne.

The Singapore property, which also has some retail space and car parks, accounts for 57% of the asset value, 40% of the revenues and 45% of the net property income.

The upside is expected to come from rental reversions, especially with regard to the Singapore properties, but the office markets in both Perth and Singapore are expected to see significant upside in coming years due to a shortage of supply. Allco REIT will also be looking to grow its portfolio through further acqusition of undervalued commercial properties around Asia, including Hong Kong.

Allco Reit is scheduled to start trading in Singapore on March 30.

¬ Haymarket Media Limited. All rights reserved.
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