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Daily ShareChat: Vital Healthcare

By Jenny Ruth

Sunday 5th December 2010

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 Jenny Ruth

Vital Healthcare Property Trust's about $240 million acquisition of Essential Healthcare Trust's assets will have a positive impact on occupancy and weighted average lease term (WALT) as well as adding to earnings in the financial 2011 and 2012 years, says Chris Byrne, an analyst at Craigs Investment Partners.

Byrne expects the transaction will increase earnings per unit by 1% in the year ending June 2011 and by 5.2% the following year.

However, incorporating the acquisition had led him to cut his valuation from $1.16 per unit to $1.13.

Vital's portfolio metrics were already sector-leading before the transaction and now "make impressive reading and provide unitholders with secure and consistent organic rental growth," Byrne says.

Its WALT has gone from 8.4 years to 11.5 years, its occupancy rate is 99.7%, only 19% of contracted leases are set to expire over the next five years, down from 31% before the transaction, and about 90% of rent reviews are CPI-linked, up from 86% previously.

"Key upside risks are that the economic recovery drives CPI (inflation) higher than expected, given the high proportion of CPI-linked rent reviews," Byre says.

"Downside risks include a major tenant bankruptcy, an economic downturn and, with approximately 63% of its portfolio domiciled in Australia, there is also some currency risk," he says.

Recommendation: Hold.


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