Amidst news of recent aggressive buying sprees in the core CBD area, Allco took the alternative approach by making an acquisition in the CBD fringe area. Allco annouced the acquisition of Keypoint, located at the junction of Beach Road and Jalan Sultan, for a total consideration of $370 million, which is at a discount of 1.18% to the appraised value of $374.4 million.

About the property. Keypoint is an integrated 25-storey commercial building with a total NLA of 311,892 sq ft. The building comprises a three storey podium and a 22-storey office tower. Office space represents 89.4% of the NLA while retail space occupies 10.6%. Allco will acquire the property for a total consideration of $370 million, a discount of 1.18% to the appraised value of $374.4 million, at an initial yield of 4.65%. In addition, the acquisition has an income support deed of up to $10.5 million over a period of two years. The acquisition will be fully funded by debt which will bring gearing up to 46%, slightly past the target range of 40%-45%. The leases have a WALE of 1.05 years contracted at an average of $3.28 psf versus the current asking rate of $6.00 psf.

Valuation and Recommendation. With our revised estimates, we have a forecasted payout of 5.42 cents for FY07 and 7.63 cents for FY08, which translate to 5.0% and 7.1% yields respectively. We retain our fair value estimate of $1.68, pending a review after the 3rd quarter results annoucement later in the month. We view the acquisition favourably, mainly due to the a) spillover demand from the core CBD area, and b) expiring leases that allow Allco to capture positive rental reversions at an opportune time when rentals are on an uptrend. We reiterate our view that Allco’s valuation remains attractive given that it is currently trading at a 22% discount to its book value. We feel that Allco has not caught up to the broad market upswing recently and this presents an entry opportunity.

Drawing on its coffers for KeyPoint acquisition

ALLCO REIT TO ACQUIRE KEYPOINT, SINGAPORE

Key Highlights

Sale and purchase agreement signed to acquire KeyPoint in Singapore for S$370.0 million
Exposure to an investment grade quality commercial asset located in the CBD fringe
Opportunity to capitalise on the tightening Singapore office supply
Acquisition is yield accretive to Unitholders and increases Asian presence of Allco REIT portfolio

Singapore, 5 Oct 2007 – Allco (Singapore) Limited (“Manager”), the manager of Allco Commercial Real Estate Investment Trust (“Allco REIT”) (SGX:ALLC) announced today that British and Malayan Trustees Limited, as trustee of Allco REIT, has entered into a sale and purchase agreement with Sable Resources Pte Ltd (“Vendor”) for the acquisition of KeyPoint, 371 Beach Road, Singapore (“KeyPoint” or the “Property”). The Property is being acquired for a total purchase price of S$370.0 million¹ (“Purchase Consideration”).

KeyPoint is an integrated 25-storey commercial development located at the junction of Beach Road and Jalan Sultan, Singapore. With a total net lettable area (“NLA”) of 311,892 sq ft (28,976 sqm), the Property comprises a three-storey podium and a 22-storey office tower.

KeyPoint also has a four storey car park block consisting of 227 car bays. The Property is wellserved by both the Bugis and Lavender MRT stations, which are each located within 600 metres of the Property. Its accessibility will be further enhanced by the upcoming Nicoll Highway MRT station on the Circle Line, which will be approximately 200 metres from the Property and which is expected to be operational from 2010 onwards.

KeyPoint is being acquired on an assumed initial net property income yield of 4.65%² for the first 12 months. The acquisition is yield accretive and will provide net uplift to Allco REIT’s rental income base, enhancing distributable income to Unitholders. The acquisition represents a total purchase price of S$1,186 per sq ft. Further details in relation to the Property are set out in the accompanying presentation and SGX-ST announcement.

The acquisition will be funded entirely by debt at a total cost of approximately 3.6%. Following the completion of the acquisition, Allco REIT’s leverage (calculated as gross borrowings plus deferred payments divided by total assets) will increase to approximately 46.5%, which is within the aggregate leverage limit as set out in the guidelines in Appendix 2 of the Code on Collective Investment Schemes issued by the Monetary Authority of Singapore (“Property Funds Guidelines”). Allco REIT has an investment grade credit rating from Moody’s Investor Services Inc. which, under the Property Funds Guidelines, permits gearing of up to 60.0%.

Upon completion of the KeyPoint acquisition, Allco REIT’s portfolio exposure to Asia will increase to approximately 67.2%, and the total portfolio base by asset value will grow to approximately S$1.83 billion. With a greater exposure to Singapore, Allco REIT intends to capitalise on the continuing strength of the commercial property market which is supported by the sound fundamentals of the Singapore economy.

Key portfolio benefits:

Reinforces Allco REIT’s pan-Asian investment strategy
Acquisition is expected to be yield accretive (refer today’s SGX-ST announcement)
Property to be acquired at a discount to independent valuation
Enhanced Asian presence
Reduction of Australian exposure to less than 33% of total NLA

Key property highlights:

95.9% occupancy
Passing gross rents significantly below market
Significant lease renewal in the next two years
Conveniently located, 5 minutes drive from the CBD, within walking distance to two MRT
stations and situated in the vicinity of major buildings
Close to Circle Line Nicoll Highway MRT station currently under construction
Asset includes high traffic retail area of 10.6% of total NLA
227 parking bays on-site
Potential asset enhancement in the medium term

Mr Nicholas McGrath, Chief Executive Officer and Managing Director of the Manager said, “The acquisition of KeyPoint reinforces Allco REIT’s pan-Asian investment strategy and reduces our Australian exposure to less than 33%.”

“Given the current office supply constraints and rising office rentals in the CBD, this is an opportunistic time to be adding a quality, investment grade commercial asset that is located in the Singapore CBD fringe. We are confident that properties in the CBD fringe will provide alternative leasing premises to the core CBD areas and that there is a strong likelihood of good rental growth from the Property in the near term. Over 50.0% of the NLA expires in KeyPoint in the coming year and management intends to capitalise on this through a strong asset management plan.”

“KeyPoint is well-positioned to leverage on the future growth and rejuvenation of the surrounding Beach Road precinct with the completion of the Sports Hub and the recently-awarded integrated commercial development at Beach Road. The Property will have enhanced accessibility via a covered pedestrian walkway to the upcoming Nicoll Highway MRT station, in addition to the close proximity to current MRT stations on the East-West line”, Mr McGrath said.

¹ All references to Purchase Consideration in this release exclude expenses associated with the acquisition.

² Inclusive of income support of up to S$10.5 million, to be provided by the Vendor for a period of two years from completion of the acquisition.

Source : SGX

Allco annouced 3 yield accretive acquisitions of an additional three properties in Japan, which will result in an exposure of 43% Singapore properties, 42% Australia properties and 16% Japan properties. The acquisitions are expected to be completed in late September.

About the properties. Allco will acquire the three properties for a total consideration of S$153.05 million, a discount of 1.6% to the appraised value, with a weighted initial yield of 4.68%. The acquisitions will be fully funded by debt which will bring gearing up to 33% post acquisitions. The leases are relatively short-term and management has indicated a possibility of 5-10% rental reversions upward upon renewal of leases.

Valuation and Recommendation. We adjusted our revenue estimates accordingly with the acquisitions. We retained our fair value estimate of $1.68, derived from our DCF model. Key assumptions include a WACC of 6.65, risk premium of 6.7%, beta of 0.9 and a terminal growth rate of 2%. We have a forecasted payout of 5.94 cents for FY07 and 7.42 cents for FY08, which translate to 5.76% and 7.2% yields respectively. The increased exposure in the world’s 2nd largest economy improves the diversification and reduces the reliance on any single market. We maintained our view that Allco is currently attractively priced, offering the highest yield of 5.76% among the office REIT, and is poised to benefit from the rising office rental trend.