By Jenny Ruth
Monday 4th October 2010 |
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ING Medical Properties Trust, now Vital Healthcare Property Trust, will probably need a significant capital raising if it goes ahead with the purchase of Essential Healthcare Trust, says Jason Lindsay, an analyst at First NZ Capital.
Vital is currently conducting due diligence on Essential.
"Assuming (Vital) is able to acquire the assets at book and allowing for the $A30 million ($NZ39.5 million) development pipeline over the next two years, we estimate (Vital) will have to raise in the range of $100 million to $170 million," Lindsay says.
He says Vital's management fee should be renegotiated as quid pro quo for a successful capital raising.
Lindsay says even factoring in the age of the Essential properties, a weighted average lease term of 15.1 years and a running yield of 9.9% "seems almost too good to be true. This compares with 8.3% for (Vital's) current Australian assets."
While there may be some peculiarities in Essential's portfolio, information to date is limited.
"The old adage 'if something seems too good to be true, it probably is' may not apply here but we require more detail to make a final judgement," he says.
Vital's Australian operations currently account for about 36% of its assets and if the acquisition proceeds would increase to more than 65% after the much-needed capital spending.
Recommendation: Underperform.
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