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Logic Funds Analysis of VHP Rights Issue

November 12, 2010

VHP RIGHTS ISSUE

Vital Healthcare Property Trust (VHP) recently released their prospectus for the rights issue to acquire a twelve asset portfolio from Australia’s Essential Health Care Trust (EHCT).  VHP is attempting to raise NZ $150.9m through a fully under-written one-for-one rights issue at $1.05 per unit.  This capital raising is dependent on unit holder participation and all holders have the option to increase or decrease position size.

 

Current Situation

These units are currently trading at NZ $1.29, which is more than 20.00% above the rights issue price at $1.05.  The rights begin trading on Monday, 22 November with the record date for entitlement being the 24 November.

 

Logic Analysis:   SELL

In our opinion, the asset acquisition by VHP and the rights offering provide an opportunity to sell at an attractive price.  We recommend taking advantage of the buying now, and completely avoiding this rights issue for the following reasons:

  • VHP is purchasing the Australian twelve asset portfolio for full retail price – full net asset value compared to a current average market discount of 6%. We also note that a number of Australian tenants have the option to buy their property, which places a cap on the potential for upside growth for this trade.
  • Low yield in comparison to other NZ based Real Estate Investment Trusts (REIT). For example, The Goodman Trust (GMT) offers up to 2% greater yield than this and is a safer option in our mind.
  • The issue as a whole has received similar criticism from other market commentators  and appears as if there is a general lack of interest in the NZ Market.
  • The issue is  solely lead managed by Forsyth Barr and their track record speaks for itself: (South Canterbury Preference Shares, Credit Sails, Strategic Finance, Hanover, Feltex).

 

Recommendation:

 

Sell them if you own them – ideally as soon as possible.

 

Please click here to download this document as a PDF.

Disclaimer:
The information and any opinions herein are based upon sources believed reliable, but Logic Fund Management and its directors make no representations as to its accuracy or completeness.  All opinions reflect our judgment on the date of this report and are subject to change without notice.  The information contained in this publication should not be used as a basis for making an investment decision about any particular company. Professional investment advice should be taken before making an investment.  Past performance is not a reliable guide to future performance.  Disclosure statements available on request.

 

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