AllCo – Phillip

1H07 Results. 1H07 revenue registered 153% increase from the same period a year ago mainly due to rental contribution from 55 Market Street that was acquired in Nov’06 and higher rental reversion from Central Park (Perth). The increased revenue also resulted from a higher distribution received from AWPF from its gain on sale of 222 Exhibition Street. 1H07 DPU almost doubled from 1.53c to 2.99c. With the current strong property market, property revaluations have resulted in an increase of S$155.4 million over the book value of Allco. NAV per unit has increased from $1.12 to $1.48. Current gearing stands at 24%, with a credit rating of Baa3 which allows maximum gearing to 60% according to the SGX property fund guidelines, Allco has approximately $450 million more in debt facility to fund its acquisitions.

Regional growth. Allco completed the acquisition of the Centrelink property located in Canberra, Australia for a consideration of $136.5 million, which is fully funded by equity through the issue of new units. The Centrelink property with a NLA of 430,556sqf, has a full 100% occupancy with an initial lease term of 18 years leased to the Australian federal government. Further to the Centrelink property, the latest addition to its property portfolio is the Cosmo Plaza located in Osaka, Japan. The acquisition cost of $82.4 million is fully funded by debt, which will bring the geariing level to 24%. Cosmo Plaza is a commercial property with a NLA of 224,482sqf.

Valuation. Using a WACC of 7.67%, our DCF model gives us a fair value of S$1.68 for Allco. This translates to a 3.72% yield and a price to net asset value of 1.16x for FY07F. With an improving outlook in the economies of Singapore, Australia and Japan, Allco is poised to benefit from the rising office rental trend. The current depression in share price presents a good entry opportunity. We recommend a Buy for Allco with an attractive 53% upside.