REITinvestor.ca raises WRK.UN to a #2 Rank but maintains 3-mo target at $14.00.
Posted in the REIT Forum
#1 May 27, 2009
REITinvestor.ca raises WRK.UN to a #2 Ranking but maintains 3-month target at $14.00.
Whiterock REIT (WRK.UN - TSX) May 27, 2009 REITinvestor.ca raises WRK.UN to a #2 Ranking but maintains 3-month target at $14.00. REITinvestor.ca, a private subscriber-based independent rating and ranking service, has increased Whiterock REIT to a positive #2 ranking but maintained its target price at $14.00. Following a review of Whiterock REIT’s Q1-09 report, REITinvestor.ca is of the opinion that the WRK.UN payout is safe for the remainder of 2009, but does not expect any price appreciation for the foreseeable future. Of note to REITinvestor.ca are the following:- REITinvestor.ca estimates that Distribution Payouts continue to exceed 100% of Distributable Income, and expects that this margin will increase in Q2 when the additional issued equity will require servicing.- Liquidity was greatly improved in Q1, as WRK.UN raised approximately $10M in equity issue and $22M new long term mortgage debt.- Whiterock reported 71% of 2009’s lease expiry has been completed at approximately 15% rental rate increases.- Occupancy weakened slightly from 98.8% in Q1-8 to 97.1 in Q1-09, but is expected to improve in Q2 & Q3.- 59% of revenue is derived from investment-grade tenants, the two largest by rental revenue being the SIQ (Quebec Government) & the Province of Ontario, which combined total 20% of annualized revenue.- Whiterock reported its line of credit facility of $42M to be fully repaid as of May 12, 2009, and is due to be renewed in June 2009. Longer term – Despite solid management skills of Whiterock, REITinvestor.ca continues to believe that the current distribution is unsustainable and will likely need to be cut in the next 24 – 48 months in order to replace the $55M in convertible debentures coming due. While it is difficult to project the economic situation 24 months forward, management appears ready to accept the challenge to improve Distributable Income and minimize the amount of the cut. Overall, we expect WRK.UN to trade in tight range near $14.00 for some time. With its current yield is an excess of 22% at today’s trading price of $15/ unit. REITinvestor.ca does not see much upside to the units at the present time, despite the high yield. WRK.UN units closed on May 26 at $15.10 per unit on the TSX. For more information, visit REITinvestor.ca.
DISCLOSURE: REITinvestor.ca maintains its own investment fund and has no position in WRK.UN. REITinvestor.ca does not provide investment advice nor does it recommend the purchase or sale of securities, including any REIT units it covers. Please consult your personal professional advisor before investing.
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