Allco Reit

The heavy correction has punished a lot of stocks, but one of those most heavily punished is Allco REIT.It has fallen more than 50% from $1.40 in May 06 to $0.67 currently.

At $0.67, Allco REIT is trading at an amazing 50% below its NAV of $1.34, offering a yield of 8.93% based on FY2006 payout of $0.0598.Its yield is set to rise because its FY2007 net income is expected to reach at least $0.10 per share based on its 3Q results thus far.
As such, I am placing Allco REIT on the stock alert with a buy at $0.67 at 50% below NAV.That said, I want to add that Allco REIT has been falling on very heavy volume recently, which is not a good technical indication - thus I would prefer to stagger my buys just to be on the safe side.
It means that based on TA, Allco has been under a lot of selling pressure recently and its price MAY go down further.

There is another stock also went down heavily, CitySpring, from 1.60 to 0.78 now with NAV 0.80.

A lot of selling have been from JP Morgan, whom are the representing Allco Financial of Aus. (Owner of Allco Reit)Allco F is trying to get some fund as there is $1.1 billion short term loan needed. Allco F share have drop 40% in 1 day before recovering to AUS$3.10. I believe Allco Reit is a good long term bet. A lot of bad news in the market have open up opportunity for us to enter at an attractive price.

Like Warren B says "It is safer to buy stocks when they are cheap, and not when they are more expensive.""I love the bear that give away shares for close to nothing.""Do not treat shares like Jewelry, only buy shares when they are undervalue."

On Cityspring:Based on the fact that there are other business trusts (e.g. Allco, K-Reit) available at 50% below NAV, don't you think it is logical to only buy Citypsring if it falls to that valuation?

However, the annual report of Allco clearly shows some weak points...
620mn $ of refinancings to be done this year, with the credit crunch going on, it's not a great environment for it. However, assume ultimately they wont have a problem getting the funds refinanced as the asset backing looks ok.Gearing is more of a problem - 43% sounds fine, but keep in mind that their Australia and Singapore properties have been revalued upwards by 30-ish percent in 2007 alone. Recent transactions here point towards an end of the boom, and lots of supply coming up from 2010onwards. If there was a correction in property values of, say, just 20-25 percent (not a big deal considering how much properties gained in just one year) and debt stays unchanged, their gearing would come close to the maximum 60% allowable.
Latest at that point they may be forced to raise new equity (or sell assets) to pay down debt, something they decided not to do in November when units were trading above 90c. Raising equity when the unit price is low can strongly dilute net asset value and distribution per unit. Current debt levels would also make it difficult to buy more properties financed by debt.So - Allco Reit seems at least to a considerable part a play on the property market holding up very well. In order to grow further, at some point either new equity has to be issued, or property prices must race up further (how likely is that in the short term?) to reduce gearing and allow room for debt expansion. Unfortunately difficult to imagine their shares staging a quick run-up to much higher prices in the short- to medium term.

I will continue to take interest in office trusts, for eg. ALLCO for a few reasons:
1. Consistent income distribution to unit holders (though not guranteed).
2. Distribution yield is looking more attractive as we experience declining interest rates.
3. For investors adopting a longer term outlook, in my view, I see strong demand for office space in the years ahead.
4. Government commitment to make S'pore a global / regional financial hub.
5. Strategic move by Temasek & GIC to invest in big banks hit by credit crunch could (in my own opinion) aid in drawing these banks into relocating some operations to S'pore in the future, thus boosting demand for office space.
6. Perhaps or maybe, we'll witness some mergers / takeovers among trusts given the recent declining unit prices.
7. Agree that given the current credit mess, properties expansion for trust would be hindered. However, if I am an investor looking for defensive play amid the current market turmoil, trusts shld be what I wld look into.
8. I am not a speculator looking for short term gain.
9. Why not enjoy consistent income payout now and at the same time adopt long term view to take advantage of capital gain (hopefully) in the future when the next boom cycle is back.