Whiterock Real Estate Investment Trust T.WRK.DB.K

another upgrade in price $16.25

[canadafan]

Whiterock REIT (WRK.UN-T: C$15.10)			Update
NEUTRAL, High Risk* 12-month target price: C$16.25 (was C$13.00)		April 1, 2010
		Brad Cutsey, CFA / [phone] [e-mail] Joseph Fazzini, CA / [phone] [e-mail]
Heading in the Right Direction; Neutral Rating Maintained for Now
NEWOLD*Target Price$16.25$13.00NAV Estimate$12.65$12.15Assumed cap rate8.0%8.3%2010E FFO/unit$1.67$1.752010E AFFO/unit$1.39$1.432011E FFO/unit$1.88$1.772011E AFFO/unit$1.62$1.46Market Data52-Week Trading Range$15.94-$7.05Shares Outstanding (mm)313.3Market Capitalization (mm)$200.4Financial DataCash Distribution$1.69D/GBV365%Net Asset Value per Unit$12.65Price to NAV119%ForecastsFYE: December2009A2010E2011EEBITDA (mm)1$35.6$39.4$42.2FFO per unit (FD)Q1 .48 .35 .48Q2 .39 .39 .47Q3 .39 .46 .45Q4 .37 .47 .48Year-end$1.61$1.67$1.88Rep. AFFO/unit (FD)2$1.36$1.50$1.71AFFO/unit (FD)$1.23$1.39$1.621 Does not include cash distributions rec'd from JV interests2Calculated as per Whiterock's definition of AFFO3Pro-forma Q1/10 equity issuanceValuation2009A2010E2011EP/FFO (x)9.49.08.0P/AFFO (x)12.310.89.312-Month Target Price$16.25Cash Yield11.2%Capital Gain7.6%Total Projected Return18.8% Source: See Note 1	New C$16.25 Target Price, Neutral Rating Maintained for Now We believe WRK's acquisition program, which has been one of the most active amongst its peers, should start to bear fruit over the next twelve months and contribute meaningfully to the bottom line. That said, we do believe WRK's results will likely face headwinds from tougher YoY comparisons, at least in the 1H/10 due to timing differences between equity raises and capital deployment and the leasing up of vacant space. While we remain optimistic given WRK's solid property portfolio, quality tenant base (top ten tenant base accounts for 43% of total revenue of which all but one share a credit rating of A or better) and long-term leases, we recommend investors take a "wait and see" approach. Our Neutral stance stems from: 1) an AFFO payout ratio remaining above 100% through to 2011 and, 2) the Trust still has the highest debt-to-GBV ratio of its peers at 65%, despite recent efforts to reduce leverage. We derive our new C$16.25 target price by applying a multiple of 10.0 times (previously 8.5-9.0 times) to our new 2011E AFFO/unit estimate of $1.62. We believe our new target multiple is appropriate given 1) management continues to acquire properties in an accretive fashion and 2) the REIT's cost of capital continues to trend downwards with every passing month. Q4/09 Results Modestly Below Expectations WRK reported Q4/09 FFO/unit of .37, down 26% YoY, and .03 below of our .40 estimate. The decrease was largely a result of temporary tenant vacancies that resulted in negative S-S NOI growth of 1.6% for Q4/09, higher financing costs associated with capital raises throughout 2009 and a 28% YoY increase in G&A expense to $450K in Q4/09. Contributing to the miss in our estimate was the lower than expected property management fees and income generated from WRK's co-ownership interests. (See Figure.1 for details). Please see the Q4/09 Highlights section for details. Strengthening the "Stable" with Some Good Looking Deals By year-end 2009, WRK had acquired a $54.2M co-ownership interest in ~$161M worth of properties through Joint Venture agreements with its institutional partner ROI Capital. Subsequent to Q4 2009, management acquired a 49.9% interest in a portfolio of 3 high quality properties in the GTA valued at ~$214M for an estimated going-in unlevered yield of ~8%. Consideration for WRK's interest was funded by the proceeds from the recently closed $51.8M equity issuance (See Figure.1 for Details). It is important to note that WRK has been one of the most active deal makers in the past twelve months and was awarded the Real Estate Excellence Award for Deal of the Year by NAIOP. The recent acquisitions continue to diversify the property portfolio towards primary markets. See Figure. 2. De-levering the Balance Sheet is A Prudent Move With the issuance of ~3.5M units for gross proceeds of $51.8M during Q1 2010, WRK reduced its debt-to-GBV (incl. converts) from ~72% to ~65%. We view these steps to de-lever as prudent and we estimate the company has ~$7M of cash on hand and a $42M untapped operating facility.
WRK.UN: Price/Volume Chart Source: Thomson ONE
Company Description Whiterock REIT is focused on the ownership of well-located, long-term leased office, industrial and retail properties with high-credit quality tenants.

Whiterock REIT April 1, 2010 Page 2 Busy Growing Into its Distribution