AllCo – Nomura

Our view

Allco REIT has successfully refinanced its S$550mn debt due in July 2008. With the market’s misplaced view of refinancing risk and expectations of a “fire sale” of its Australian assets expunged, we see Allco REIT pursuing an orderly review of its portfolio while the market re-focuses on the REIT’s inherent value. STRONG BUY.

Anchor themes

While office supply will remain tight over 2008F, we expect office rents to peak in 1H09F, before seeing cyclical declines of 15.2% in 2010F and 18.0% in 2011F, given increased new office supply.

Strong rental reversions are likely to underpin REIT cashflows. That said, rising concerns over the ability to refinance debt has seen REITs trade below book value. In such an environment, investors need to focus on underlying asset values, with REITs with well-located assets to benefit from rising expectations of M&A activity.