PTN - Prime Retirement and Age Care Property Trust

[RustyK]

Hi There,

I have pasted some interesting research below regarding PTN. I was wondering if anyone else had any thoughts on this one? It looks good to me with the ageing population and lack of accomodation. Trading at a discount to its Net Tangible Assets.


Prime Retirement and Age Care Property Trust (PTN) $0. 86
Recommendation: BUY

FKP Property Group and Macquarie Capital Funds have emerged as the largest retirement village providers in Australasia following the acquisition of Zig Inge Group for $641 million. The acquisition implies a EBITDA multiple of 24x.
Impact
· If we imply the same multiple to our FY08 estimates for PTN the resulting valuation is $2.61. We believe however, that the Zig Ing transaction was overpriced, reflecting the strong interest in the market and the strategic position the acquisition provides. If we instead apply the average consensus multiple used for valuing Becton's retirement business this implies a valuation for PTN of $1.22.
· Our price target based on NTA and DCF remains $1.04.
· At $0.86 PTN offers a very high 10% yield and 16% discount to NTA and so is very cheap.
· While we are cautious about the risk of underlying income (DMF / development) relative to standard non-stapled LPT's, PTN is very insulated from some of the current macro events at play at the moment. It has no currency risk, low gearing (12%), no sub prime, and very little risk of the NTA falling.
· We believe the recent share price underperformance is a result of original retail investors being scared off by the recent LPT sector underperformance and taking the opportunity to exit now that they have a liquidity mechanism via the trust being listed.
· We maintain our BUY recommendation and believe this is an opportune time to get on board.

Disclosure: Patersons Securities Ltd acted as Broker to the Offer to the IPO that raised $100,000,000 through the issue of 100,000,000 shares at $1.00 per share for The Prime Retirement and Aged Care Property Trust in August 2007. It received a fee for this service.


Any Thoughts???

 

[PortfolioPlus]

I agree with Patersons summary.

Having studied PTN closely it offers a healthy discount to NTA (current price around 84 cents and NTA of $1.02)and the underlying security is bricks and mortar. Plus the revenue streams are largely rents ($50,038 in 08) which are supported by CPI increases.

The other projected income in 08 is $25,895 in development revenue but the sales to date are very encouraging (T'ville Mackay and Gold Coast).

External debt is only $342m and free cash flow after interest should be around $45,252.

And...Dividends are paid quarterly with a min of 8.5 cents (fully tax deferred) on a $1 share which is presently priced at 84 cents.

My thought is that, given that it only listed in early July, it is flying below the institutional radar screen. That said it has enjoyed a good track record with past distributions for the last 4 years at of around 9.4%.

And the main shareholder (Bill Ludewici??) continues to buy up big.

As I see it the main questions to keep asking are these:

Is the average rollover rate of RGP holding up as per prospectus?
Are they on track with developments at Helensvale, Townsville and Mackay?
Are the englobo sales at Lilydale Valley, Greenleaf Belmont and Greeenleaf Wyree Point happening?

But do your own sums and draw your own conclusions.

 

[PortfolioPlus]

Well I'm puzzled. The market is an ass! Cop this:

Two companies (largely the same size and business focus) report 1H results within a day of each other.

One company (BBC) has a share price surge of 12.5% largely as a result of "insto" support. The other (Prime Trust PTN) barely has a price move at all and certainly no institutional support.

Surely its logical to assume the market should reward the company with the best results...but it doesn't.

Let's compare the 1H results
BBC PTN
Shares/Units 651.7m 553.8m
Current share/unit price 63 cents 69.5 cents
NTA $0.59 $1.05
EPS 3.2 cents 11.65 cents
1H Distribution 4.2 cents 4.2 cents

Both companies claim that are on track to deliver on FY08 results although PTN is further advanced in meeting this promise than BBC.

Actual 1H results were as follows:

EBITDA $44.1m $56.2m
NPAT $18.2m $47.1m

So, now I'm thinking, maybe the instos are knocking PTN because of debt exposure...but no, it can't. Here are the figures:

Gearing 38% 29.5%

Neither company has any short term debt rollover of signifcance at all.


I just cannot explain why PTN is not seen as the better bet by the instos. What am I missing or should I start with a a Insto mentality of "it's not my money" and let's talk about the market over a Jack Daniels at lunch; put our hunches into play mid afternoon before a high-ball at 5.

 

[ROE]

BBC is backed by an investment bank that said it all.

Don't worry about it man.. if you think PTN is a better stock then stick with it
A good stock rarely geso un-recognized by the market for long.

The market eventually catches up.

Having said that I dont know much about the 2 stocks and I dont hold or intend to hold of either stocks.

 

[Logique]

I'm hearing you PP, and what ROE said about it BBC being B & B backed would carry a lot of weight.

But there's another thing of the respective charts. The instos might be interpreting a potential turnaround in BBC, while in comparison PTN with it's short history looks entrenched in a downtrend, they are worried about where the bottom is. But all the same I go along with what ROE said.

 

[hartley]

I talked to my accountant friend about this and he mentioned something about NTA being revalued at +54million (or thereabouts) recently, which may mean the NTA of 1.04/share is overvalued, any comments?

I do like the looks of this stock on paper, and sorry about the lack of substance, i'll look into it when i'm not at work.

 

[hartley]

Seems they only revalued from 1.00 to 1.05, not a huge change (relative to the 67.5c Offer), though property valuations increasing recently does raise slight suspicion.

Either way, looks like a good buy to me based on NTA alone, couple that with a first half distribution of 4.2c (>10% div at this price) and you've got an attractive stock for my money - though unfortunately it is tied up elsewhere.

 

[ROE]

Be careful about NTA. I think I post on this forum some where on this forum about using NTA .. NTA has evolved from good old day to what it is today so be careful

 

[Logique]

The company have confirmed their forward distribution guidance at 2.1c per quarter. Shares currently at 65c, which is well under the NTA of 1.05 (thanks hartley) gives 12.9% annualised and tax deferred yield. The next quarterly distribution of 2.1c is payable to holders at the end of March, so I had a little nibble at it this afternoon. My broker allows 60% LVR on it too.

 

[Logique]

There is a necessary qualification to my statement above. The company have confirmed quarterly distributions, and 4.2c total for the half year to date. Not quite the same thing as forward guidance, however confident they seem.

 

[PortfolioPlus]

Accept your suggestion ROE and its times like these that you've got to have a steely nerve when you're somewhat contrarian. As Buffett said "when the market is greedy you be fearful; but when the market is fearful it's time to be greedy."

I feel comfortable with the underlying factors of this company (despite more falls yesterday and despite the high management fee struture).

As to NTA...yep, accept your suggestion that it isn't everything...but its bloody comforting when you buy a $1.05 asset (which is genuine bricks and mortar) for about 67 cents.

Digging deeper with this company...the majority of their profit for the quarter was as a result of property revaluations but this is an acceptable accounting standard these days. It will be interesting to see what happens when property prices fall! Because of timing differences and adverse weather conditions their development program hasn't booked profits on sales in this half....but they're there... I checked around. It's amazing what info you can get when you just phone a building site office!

I really think the instos and the market in general has got spooked by the credit crisis. PTN has gearing at just 29.5% with no major refinancings in the immediate future. They can ride high in the saddle with dry feet.

So too can say FKP which released its half yearly figures yesterday and got slammed...despite stating publicly that their debts had all been re-negotiated and just $14 million will be a current liability as of June 30...this for a billion dollar plus company. My belief is that Directors take a second, third and fourth look at Public Releases these days because the ambulance-chasers are just waiting to pounce with massive claims, against individuals as well. That doesn't mean I think they are altar boys either...if they could get away with a porky-pie they would, no doubt.


Anyway...I'm going to sit tight and wait.

 

[RustyK]

I think PTN's share price performance of lack there of is just a product of a share market that is bashing listed property trusts all over the place. BBC and FKP are in the same market and have experienced share price falls of a similar nature. I expect that the share price will remain depressed for as long as 12 months until the sub prime crisis in the US starts to subside and confidence returns in the sector. On that note I am going to take the opportunity to accumulate more stock when ever it punches below 60 cents. A 14% fully tax deferred yield at that price is pretty hard to argue with. The company will be valued close to NTA at some stage in the future and even at 90 cents which is a 15% discount to NTA it is a 50% capital gain.

I am in no rush it is as Mr Buffet says it is very hard to buy something that is already popular and make good returns.

These are my thoughts only DYOR.

Cheers

 

[PortfolioPlus]

I agree RustyK. I checked my bank account this morning and there it was...regular as clockwork...my 2.1cent quarterly dividend.

And to quote more from Buffett, the value of a business has nothing to do with market sentiment and everything to do with the discounted value of future income flows.

When you can acquire $1.05 in bricks and mortar assets for just 53.5 cents plus get a regular quarterly dividend approximating 15.9% fully tax deferred...come on...where can you duplicate this?

I'd be v surprised if a lot of retirees wouldn't want to invest here just to underwrite their lifestyle. 16% no tax...wow!

 

[Logique]

PP,
mate sssh, while we accumulate. I also noticed the March dividend turned up in my account. Very tidy on the initial investment. All the peer group in this sector look ripe for the picking to me, but none with better investor return numbers than this one.

With the overall markets the bears will be starting to feel nervous, the consolidation at these levels is strong, so I'm not sure that Rusty's depressed for as long as 12mths comment is one I completely go along with. One thing I am sure of is that in years to come there will be an increasing tide of seniors clamouring to pay us a cpi indexed stream of rents.

 

[imajica]

just bought in today.

reasons:

- almost 14% yield - fully franked divvies paid quarterly

- current share price 61c - underlying asset value over $1

- management have recenly got rid of 'dead wood' and this will make the company more desirable to the instos - the second half of the year as stated in their recent report is where a majority of earnings growth is to be found - this will hopefully result in share price appreciation - this and a 14% yield - what more could one ask for?

 

[JTLP]

Hi Imajica,

When you say got rid of "Dead Wood" what do you mean?

Also, where can you find out all the financial info about divvi and debt etc?

Thanks

jtc

 

[imajica]

http://www.primetrust.com.au/www/124/1001127/displayarticle/1001171.html


have a read of the most recent announcement on this page.

provides details regarding the yield/divvies etc

also mentions the restructuring of the organisation.

 

[RustyK]

With respect to the restructure of the organisation this will make them a lot more attractive to the institutions and also in a better position to be taken over from the likes of a Macquarie Group.

It is also very interesting to note the difference in the buy / sell ratio. Sellers have outnumbered buyers in PTN at about 7 or 8 to 1 over the past few months and all of a sudden we are pushing towards parity. Sellers have dried up and buyers are entering the market.

Of course I could be wrong and it would not be the first or the last time.

Cheers

 

[PortfolioPlus]

Agree with your summary RustyK...plus take into consideration that the new CEO is from an experienced merger and acquisition background and stated openly in the announcment that he will position PTN for both of these eventualities.

You don't need to be the sharpest tool in the shed to realise that right now this fragmented industry is been consolidated in much the same way as Bunnings consolidated the hardware industry.

Yep, the big players are buying out the "mums and dads" and PTN is one of the big players which has quality holdings in strategically important areas of demand...notably Queensland.


Get in before the institutions start taking their positions in PTN....and they will once it cracks the ASX200 club. Currently they are being blindsided by making investments in BBC, a Babcock and Brown supported company, which is a poorer quality asset with a far less NTA. Just put the PTN and BBC charts together and you will see what I mean...you might also then tell me why some instos are investing in BBC and not PTN.

 

[prawn_86]

I really cant make my mind up about these guys. They are on my watchlist, but at the moment the plusses and minuses are weighing each other out so i'll just continue to watch until it goes one way or another in my mind.

Positives:
>14% dividend yeild
Growth Sector
Trading well below NTA
Low gearing
New management


Negatives:
Profits come almost solely from revaluations
They are not making enough cash to cover distributions
No real indication that they can make it consistently profitable (without revaluations)
Technical downtrend with 50c the next target now 60c has been broken


Watching with much interest