ECM Libra Investment Research, October 29, 2008
YTL Corporation Berhad
Current Price RM 5.65
Target Price RM 8.00
YTL buys into Macquarie REIT
Expanding Starhill REIT brand via acquisition of
Macquarie Prime REIT.
YTL has entered into a sale and purchase agreement (S&P) withMacquarie Real Estate Singapore Pte Ltd (MRES) and Macquarie Bank Limited (MBL) to acquire a 26% stake in Singapore-listed MacquariePrime REIT (MP REIT) for a cash consideration of SGD202.6m (RM484.5m) or SGD0.82 (RM1.96) per unit.
Concurrently, it had also entered into a S&P with MBL to acquire a 50% stake in Prime REIT Management Holdings (PRMH), the property manager of MP REIT) for a cash consideration of SGD62m (RM148.3m). In addition, YTL has also entered into a service agreement with MBL for
the period from 28 October 2008 until the completion of the acquisition for a fee of SGD20m (RM47.8m).
Upon completion of the acquisition, YTL will rebrand MP REIT as Starhill Global REIT, which we believe will have synergistic effect with its Malaysian listed Starhill REIT and will elevate YTLís profile as a regional REIT player.
An attractive acquisition.
The acquisition of MP REIT at SGD0.82 per unit is really an opportunistic deal amid the current global financial turmoil. Although the offer price is 61% higher than MP REIT last traded price of SGD0.51 per unit, it is at a massive 49% discount to its net asset value of SGD1.62 per unit. Based on the annualised distribution per unit for 1HFY2008 of 7.08 cents, YTL will reap dividend yield of 8.6%.
Funding not an issue.
The acquisitions will be funded by the proceeds from the USD300m (RM1.06bn) nominal value 5-year guaranteed exchangeable bonds issued by YTL Corp Finance (Labuan) Limited, a wholly-owned subsidiary of YTL on 15 May 2007.
Valuation and recommendation.
While the acquisition is earnings accretive, its immediate impact to bottomline is minimal at circa 0.9%. As such, we maintain our earnings estimate. Our buy call is reiterated while target price of RM8.00 (based on 25% discount to sums-of-the-part value of RM10.50) is maintained.