Agency also places rating on CreditWatch with positive implications
STANDARD & Poor's Ratings Services yesterday said it has assigned its 'BB' long-term corporate credit rating to Allco Commercial Real Estate Investment Trust (Allco Reit).
Anchor Point: The weighted average lease term of 4.8 years for Allco Reit's portfolio is higher than averageAt the same time, it placed the rating on CreditWatch with positive implications.
The rating on Allco Reit reflects the trust's smaller asset base compared with its global peers'.
It has nine properties (excluding units in unlisted property fund Allco Wholesale Property Fund).
'Allco Reit also has high tenant concentration, with its top two tenants representing about 30 per cent of the gross revenue of its portfolio,' said Standard & Poor's credit analyst Wee Khim Loy.
'In addition, the trust's market and tenant diversity could decline. Should Allco Reit's manager, Frasers Centrepoint Asset Management (Commercial) Ltd, continue the previous manager's strategy to exit the Australian market and focus on properties in Singapore and Asia, the trust's asset portfolio and cash flow stability would be negatively affected.'
The above weaknesses are partly offset by the quality of Allco Reit's investment portfolio.
The Asian properties, which require minimal capital expenditure, are mostly strategically located in central business districts.
These benefits are complemented by the stable rental cash flow of Australian properties, which are backed by longer term leases.
In addition, the weighted average lease term of 4.8 years for Allco Reit's combined diversified portfolio is higher than the average for comparable real estate investment trusts focusing on Asian office commercial properties.
Allco Reit's nine properties have more than 400 tenants in total, spanning five markets in three countries.
The diversification strength of the investment portfolio provides cash flow stability to the business.
The rating is also supported by the enhanced financial flexibility of Allco Reit following the change in the ownership of its manager.
Impending refinancing risk declined after Allco Reit was 'de-linked' from Allco Finance Group (AFG). Frasers Centrepoint Ltd (FCL) acquired 17.6 per cent of Allco Reit and 100 per cent of its previous manager, Allco Singapore Ltd, from AFG on Aug 14, 2008.
Allco Reit will be eventually renamed Frasers Commercial Trust. FCL is the wholly owned property arm of Fraser and Neave Ltd, a leading consumer group with a satisfactory credit profile.
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