some back of envelope numbers

Just some thoughts on where SP MIGHT go over time...

It has obviously tanked over the last couple of days. I am trying to work out whether it represents good buying now relative to other REITS

1) SP has dropped ST as a knee jerk to both FY10 possibilities and no capital raising.

2) NTA at 49c still gives good protection for shareholders. The breakdown of where that NTA is geographically and relative to the types of debt against each allows investors to muck around with the numbers:


NTA BREAKDOWN and THOUGHTS


- Aussie portfolio 33c and gearing of 31.9% with Head Trust level collateral. This, I think is a worst case scenario if everything goes wrong or assets are all sold up. I don't think cap rates will fall by more than
10% in Aussie based on MOF's A-grade CBD assets and lack of new supply. maybe drop NTA to 28 - 30c for conservative analysis.

- US 12c and gearing of 64% with only property level debt. Some properties may be given back to lenders (e.g. Quantana may do this) and others may be sold at discount to current prices. Thus, I've used a plug NTA of say 8c per share for conservative purposes.

- Europe and Japan is 4c per share with gearing of 62%. I think that in Japan assets are valued too low based on ST lease expiry (note asset value fall of 17% for this half). If Japanese leases are renewed/ new tennant found then the asset value will go up. Europe, with Berlin aside also looks ok. E & J are small part of portfolio ~10% and suggest use MOF's sensitivity analysis 3c per share NTA.

Thus if world gets much worse and MOF walks away from all but Australian portfolio then NTA is 28 - 30c per share.

Add back likely, but conservative value of US (8c), E & J (3c) portfolio and then NTA is 39c - 41c. Using MOF's current 49c or this 39c - 41c 'guess' then not too bad.

Assume that's enough downside protection for shareholders - then forward earnings and dividends become important.


FORWRD EARNINGS and DISTRIBUTIONS


FY09 2H(annualised) 4.14cpu --> PE ratio (SP 23c) of 5.5 ---> Div yeild (4Q annualised) of 13.04%

FY10 is going to be lower. MOF Presentation indicated it would be lower than 4.14c because of the following:

- Asset sales -0.19cpu
- Underwritten DRP -0.15cpu
- Derivatives -0.15cpu

FY10 earnings (esimated for the above one-offs) ---> 3.65cpu and distribution @ 70% of earnings --> 2.55cpu

Thus FY10 PE ratio (SP 23c) of 6.3 ---> Div yeild of 11.08%

As cyclical conditions improve for FY11 and the FY10 one-off-items are not repeated then earnings/ distributions etc will improve. To play around with the numbers:

If it is assumed that FY11 earnings equals actual 1H09 x 2 core earnings (3.57 x 2 = 7.14cpu) then the following applies:

FY11 PE 3.2 --> Div yeild (70% payout ratio) of 21.7%

or if being conservative assume that FY11 earnings is equal to actual FY09 core earnings (5.64 cpu):

FY11 PE 4.0 --> Div yeild (70% payout ratio) of 17.1%


SHARE PRICE


Then what will happen to the SP? Assume market valuation returns to PE x 10 SP should be:

FY10 earnings (MOF estimated) ---> SP 36.5c
FY11 earnings (me guessed) ----> SP 56.4c - 71.4c

Or, assume that market wants 10% distribution yeild:

FY10 distribution (MOF estimate) ---> SP 25.5c
FY11 distribution (me guessed) --- SP 39.5c - 49.9c


IMO ---> Over the shorter term the market will value MOF at between 25.5c - 36.5c based on FY10 earnings/ distribution.

It could then increase in SP to between 39.5c - 71.4c based on (my guessed) FY11 earnings/ distibution.

Just my back of envelope thoughts.

Cheers
John