Propertylink shares (ASX PLG) has been a popular takeover target for companies who intend to take an interest in Sydney property. PLG stock is showing outperformance compared to its peers and we expect PLG shares to continue to grow their portfolio of assets.
Suitors including Centuria Capital Group (ASX CIP), E-shang Redwood (ESR) and Starwood Capital Group (Starwood). PLG stock is small, but showing outperformance compared to its peers.
About Propertylink Group (ASX PLG)
ASX PLG is a newly listed on the ASX since August 2016. PLG owns a diversified property portfolio and provides investment management. It specialises in Australian industrial and commercial office investments. The group comprises Propertylink Australian Industrial Partnership, Propertylink (Holdings) Limited and Propertylink Trust.
Potential Takeover And M&A Activity A Boon For PLG
After PLG shares refused Centurial Capital Group’s part-cash, part-scrip offer of $0.95 per share, Warburg Pincus-backed ESR has acquired an 18.06% stake in PLG shares at $1.02. On 4th October 2017, the share price of PLG jumped 42.25% to $1.01.
The deal may bring synergies to both sides because a large part of PLG’s business is logistics where ESR also specializes. Booming E-commerce in Australia could contribute to further demand in logistics property.
In December 2017, Starwood and its Switzerland-based Partners Group started a $500 million trust in order to take control of Propertylink Group. These takeover moves indicate that PLG operates a valuable assets portfolio, and is a profitable business. The potential takeover may also drive the valuations up for Property link Group.
ESR and Starwood intend to obtain a strategic position and may increase its substantial shareholding in PLG in the future. However, if PLG’s capital partners are not happy with the takeover action. One of the partners including FOSUN, Goldman Sachs, Grosvenor, Saudi Arabia Economic and development company and the Townsend Group, could turn into a “white knight” to keep independency of PLG. The share price would be more unpredictable then.
Robust Financial and Operational Results for FY2017
Propertylink shares delivered a strong result in the first year as an ASX listed entity PLG shares experiencing a 15.6% increase in Net Tangible Asset Per Share (NTAPS) from 0.755 to 0.873 in the first year as an ASX listed entity. Furthermore, the distributable earnings of $45.3 million exceeded the forecast of $40.2m.
Moreover, ASX PLG updated leases on 37% of total portfolio in FY2017, which increased Weighted Average Lease Expiry (WALE) from 3.6 years to 4.4 years in a year’s time. They also increased the occupancy from 95% to 97%.
In terms of Investment management, PLG achieved an average total return of 21% since establishment through external funds, and 29% of assets divested during the year across $87 million of asset sales. The uplift on asset book value of $37 million allowed Property link Group to reduce the weighted average capitalisation rate (WACR) across the portfolio by 43 basis points to 7.22%.
Propertylink Shares is Undervalued Compared To Its Peers
PLG has a Debt-to-Equity ratio (DE) of 30.5%, lower than its rival suitor CIP with DE of 43.1% in FY2017. This means that Propertylink shares is more highly geared and more susceptible to changes in interest expenses than PLG stock. In terms of capital rate, both PLG stock and CIP are similar and relatively higher than Goodman Group (ASX: GMG)–an Industrial/Office sector leader, which indicate that PLG shares have higher risk premium.
Key REITs Metrics of PLG, CIP and MGR in FY2017
Compared with CIP’s annual average return at 13.2% and Goodman Group stock at 14.4%, PLG shares higher return at 21% indicate effective capital management. Additionally, PLG’s current P/E ratio at 6.94x is nearly 3 times lower than current P/E of CIP at 21.35x and that of GMG at 18.56x. The figures indicate that Propertylink Group is highly undervalued among its industry peers.
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Propertylink shares distributable earnings of $45.3 million even exceeded the prospectus guidance of $40.2 million for FY2017, and the dividend yield of 7.22% also surpassed that of Goodman at 3.95%.
|Average annual return||21%||13.2%||14.40%|
PLG Continues To Grow Portfolio
The establishment of Property link Group Australian commercial trust and strong management will allow PLG stock to continue to acquire high quality tenants. Additionally, domestic and offshore investment into the Australia property market would be an opportunity. Propertylink Group is a company to watch out for, with strong growth potential ahead and with better financials and a cheaper price than other established players in this market.
MF & Co. Asset Management and the author does not own PLG stock. Research contributions by Haoran Yan, Honglin Chen, Yiang Yang and Ziguang Li.
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