24-Nov-2020:  Moelis Australia: VITALHARVEST FREEHOLD TRUST (Sell): PWG to support MIRA proposal to acquire VTH for $1/share

Analyst:  Edward Day, +61 2 8288 5424, edward.day@moelisaustralia.com

COMPANY UPDATE

• Ticker Code:  VTH
• Stock Price:  $0.970
• Target Price:  $0.960
• Recommendation:  Sell
• Forecast Capital Return:  (1.0%)
• Forecast Dividend Yield:  3.9%
• Estimated Total Return - 12 Mth Forward:  2.8%

Company market data: 

• Market Cap:  $179.5m
• Free Float (%):  91.4
• Enterprise Value:  $276.9m
• 52 Week Range:  $0.63 - $0.98
• Shares Outstanding:  185.0m
• Avg. Daily Value Traded:  $0.2m

EVENT

Primewest (PWG), as manager of VTH has entered into a facilitation deed with a Macquarie Infrastructure and Real Assets (MIRA) vehicle to support its acquisition of VTH for $1.00 per share by way of a trust scheme. In the absence of a superior proposal, PWG has indicated their intention is to vote their 19.9% stake in favour of the proposal.

The Deed requires at least 50% of VTH unitholders (excluding PWG’s stake) to vote in favour of the trust scheme. In consideration for the management rights, PWG will receive an $8.0m fee and inclusive of a ~$3.8m uplift on its VTH investment, PWG will receive ~$11.8m in total, having paid $10m for the management rights in Jun’20.

Failing approval of the trust scheme, MIRA has put forward a second proposal to acquire the assets from VTH for $300m. This proposal requires a 50% vote and would ultimately likely result in a wind up of the trust.

PWG has pursued growth in the agricultural sector through the acquisition of the management rights of VTH, and a ~19.9% acquired over the last 6 months. One of the key strategies to growing VTH was a potential restructure to remove the variable component, though there was no guarantee to securing this and timing remained uncertain.

IMPACT

We move our target price in line with the bid price less Moelis’ estimated December distributions to reflect investors’ likely total return from now through to completion.

INVESTMENT VIEW

PWG has indicated support for MIRA’s bid given the certainty of cash from the proposal. Given the current share price spread is <2%, we move our rating to Sell.

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02-Sep-2020:  Moelis Australia: VITALHARVEST FREEHOLD TRUST (VTH: BUY: Primewest to drive growth as things look up in FY21 with upbeat commentary from tenant

Real Estate / Specialized REIT's, 2 September 2020, COMPANY UPDATE

• Stock Price: $0.760
• Target Price: $0.900
• Forecast Capital Return: 18.4%
• Forecast Dividend Yield: 7.4%
• Estimated Total Return - 12 Mth Forward: 25.8%

Company market data

• Market Cap: $140.6m
• Free Float (%): 91.4
• Enterprise Value: $238.0m
• 52 Week Range: $0.63 - $0.91
• Shares Outstanding: 185.0m
• Avg. Daily Value: $0.2m

EVENT

VTH reported FFO of $8.8m, or 4.76c, down 22% on pcp with the variable rent contribution materially impacted by several severe weather events.

• Base rent increased to $9.6m, +3.1%, resulting from incremental capex deployed during the period, totaling $8.6m in FY20.
• Variable rent was its lowest ever recorded at $4.6m, noting nil 2H20 contribution. Variable rent was negatively impacted in both citrus and berry segments by a number of environmental impacts including:
  • Citrus: high summer temperatures (causing small fruit), high water allocation prices, hail, and costs associated with fruit fly treatment.
  • Berries: drought causing water shortages at Corindi (now resolved following completion of new water storage facilities), and fire damage at Tumbarumba.
• Capex: totaled $8.6m during the period, with investment in high security Murrumbidgee water rights, and ongoing investment in the portfolio. This capital expenditure is invested at an 8% fixed return.
• Balance sheet: NAV decreased to $0.91, from $0.95 at Dec’19, impacted by a negative movement in interest rate swaps, and minor valuation impacts given the low variable rent contribution. Gearing is 34.7%.

IMPACT

We reinstate coverage with a Buy rating and $0.90 target price.

INVESTMENT VIEW

FY20 variable rent of $4.6m sits materially below the 7-year average of $9.3m, with the year impacted by drought, high water prices, fire, hail, and fruit fly. Citing commentary from Costa Group’s results call, the outlook for citrus and berries remains buoyant with pricing strong across both segments, and citrus yields expected at levels higher than initial expectations.

Notably, VTH stated it is ‘currently exploring initiatives to reduce downside risks associated with the variable rent component’. We understand this includes adding new assets to the portfolio, with several sale and leaseback opportunities under review.

Prime West Group Ltd (PWG) acquired the management rights to VTH in July’20, along with a ~13.9% stake (and first right over another 6%). We believe PWG are motivated to close the discount to NAV and pursue accretive growth opportunities.

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