Allco’s new Japan buys to be yield- accretive straightaway

ALLCO Reit is buying three freehold properties in Japan for just over $153 million, which will be immediately yield-accretive to distribution per unit, it said yesterday.

The Galleria Otemae Building, ACO Azabu Aco Building and Ebara Techno-Service Headquarters Building are commercial developments in prominent locations in Osaka and Tokyo.

The buildings have a total net lettable area of 17,078 square metres and a weighted yield of 4.68 per cent for the first 12 months.

Allco said the purchase price is a 1.6 per cent discount to valuation and the deal is expected to be completed by Sept 26.

Allco will then own four commercial property assets in Japan, representing 16.4 per cent of its total property investments. The Reit’s portfolio will be worth more than $1.45 billion, with 42 per cent in Singapore properties and about 41 per cent in Australian properties.

The Galleria building in Osaka has 12 levels of office space and basement retail space. The Aco building in Tokyo has three levels of office space plus office/studio space. The Ebara building in Tokyo has five levels of office space.

The acquisitions will be funded by debt, with the weighted average cost of funding expected to be 2.09 per cent. Allco’s leverage will rise from 25.1 per cent to 33.5 per cent, which is well within its gearing limit of 60 per cent.

ALLCO REIT TO ACQUIRE AN ADDITIONAL THREE PROPERTIES IN JAPAN

Key Highlights

Acquisition of two high quality commercial properties in Tokyo and one in Osaka
Increased presence in Asia
Immediately accretive to Allco REIT’s distribution per unit

Singapore, 14 September 2007 – Allco Commercial Real Estate Investment Trust (“Allco
REIT”) (SGX:ALLC) today announced that it will acquire a 100% interest in three properties in Japan (collectively the “Properties”) for a total purchase price of ¥11.65 billion¹ (S$153.05 million)² at a discount to independent valuation.

Mr Nicholas McGrath, Chief Executive Officer and Managing Director of Allco (Singapore) Limited, manager of Allco REIT, said, “These acquisitions are consistent with our investment strategy of acquiring well-located, yield accretive assets in our target markets.”

Japanese property assets will represent 16.4% of Allco REIT’s total property assets upon completion⁴. The Properties will improve the quality and diversification of Allco REIT’s income.

The acquisitions are in line with Allco REIT’s regional growth strategy and continue to diversify its portfolio of assets within Asia.

“We are particularly pleased to be entering the Tokyo market and increasing our exposure to the commercial property market in Osaka. It is expected that these markets will continue to benefit from increased rentals and capital appreciation.”

The acquisitions of the Properties will be funded entirely by debt. The weighted average cost of debt funding for the acquisition of the Properties will be 2.09% and will be fixed for five years.

Following completion of the acquisitions, Allco REIT’s leverage (calculated as gross borrowings plus deferred payments divided by total assets) is expected to increase from 25.1% to approximately 33.5%, which is within the aggregate leverage limit as set out in the guidelines for real estate investment trusts 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%.

“Debt continues to be readily accessible for Allco REIT, with lenders supportive of Allco REIT’s strategy. We have seen a reduction in Yen-denominated debt costs since our previous Japanese acquisition a month ago in Osaka.” Mr McGrath said.

¹ References to purchase consideration in this release exclude expenses associated with the acquisitions and consumption tax.
² The exchange rate used in this release is S$1.00:¥76.1198.
⁴ Represented by the aggregate appraised value as a percentage of the sum of total property investments held and valued as at 30 June 2007, the aggregate appraised value and the valuation of Cosmo Plaza as at 30 May 2007.

Source : SGX

CLAIM BY (1) GUY CARPENTER & COMPANY PRIVATE LIMITED, (2) WILLIAM M. MERCER (S) PTE LTD, AND (3) MERCER OLIVER WYMAN PTE LTD

The Board of Directors of Allco (Singapore) Limited (the “Manager”) wishes to announce that Allco (Singapore) Limited, in its capacity as the manager of Allco Commercial Real Estate Investment Trust (“Allco REIT”) (SGX:ALLC), together with British and Malayan Trustees Limited, in its capacity as trustee of Allco REIT (the “Trustee”) and Unicorn Square Limited, have, on 5 September 2007, been served with a Writ and an Indorsement of Claim (collectively, the “Writ”) by Guy Carpenter & Company Private Limited, William M. Mercer (S) Pte Ltd and Mercer Oliver Wyman Pte Ltd (collectively, the “Claimants”). Unicorn Square Limited is the master tenant of the China Square Central Property (being the premises located at 18, 20 and 22 Cross Street, Singapore) owned by Allco REIT.

The Claimants were tenants in a 15-storey office and retail development known as Marsh & McLennan Centre at 18 Cross Street, which comprises a part of the China Square Central Property. Their respective leases expired on 30 June 2007. In the Indorsement of Claim, the Claimants have claimed that they are entitled to a renewal of their leases from 1 July 2007 to 30 June 2012, based on the terms of the leases which have expired, and/or damages. The Manager has been informed that the Claimants will file a Statement of Claim in due course.

The Manager intends to defend the claims made by the Claimants vigorously, and also to instruct the Trustee to do so. The Manager has taken legal advice and is of the opinion that the claims are without merit. The leases were not renewed as a result of the Claimants’ failure to properly exercise the options to renew. Notwithstanding the expiry of their leases, the Claimants have remained in occupation of the premises, and it has been made clear to them that the continued occupation (pending the determination of the issues by the court), is on the basis that they are holding over and therefore liable for double rental. In the meantime, monthly rental payments received from the Claimants have been accepted on the basis that they are payments on account for the double rent payable in the period of occupation from 1 July 2007 onwards.

In the event that the Claimants succeed in their claims, they will be entitled to a renewal of the leases on substantially the same terms as the earlier leases. The Manager’s position is that the Claimants, having remained in occupation throughout, would not have suffered any damage.

In the event that the Claimants fail in their claims, but desire to remain in the premises, they will be required to enter into fresh leases on terms to be agreed. They will also be liable to pay double rental for the period of holding over. In either case, rental is and will continue to be payable to the Trustee under the terms of the master lease between the Trustee and Unicorn Square Limited, and thus the income of Allco REIT derived from the China Square Central Property will not be affected by the proceedings commenced by the Claimants.

Further announcements will be made by the Manager as and when appropriate.

Source : SGX

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.