Month: December 2009
AIMSAMPIReit – BT
Moody’s upgrades AIMS-AMP Capital Reit
Re-rating follows recapitalisation exercise
MOODY’S Investors Service has upgraded AIMS-AMP Capital Industrial Reit’s corporate family rating to Ba2 from Caa1 following its recent recapitalisation exercise.
The industrial trust – which was formerly known as MacarthurCook Industrial Reit – underwent a change of name after a recent debt-and-equity-raising plan. The Reit placed out shares to new investor AMP Capital Holdings and existing sponsor AIMS Financial Group as well as other cornerstone investors. This was then followed by a rights issue and a new term loan.
Concluding a rating review that was started on Nov 9, Moody’s said that the rating outlook for the Reit is stable.
‘The upgrade reflects AIMS-AMP Capital Industrial Reit’s remarkably improved liquidity profile and capital structure following the successful completion of its recapitalisation plan and refinance of the maturing Singapore dollar loan,’ said Moody’s analyst Kaven Tsang.
The Reit has applied part of the proceeds from the issuances to complete its acquisition of a building (4A International Business Park) and will also acquire four new properties from AMP.
‘These new properties are cash flow generative and will to some extent support its income diversification and debt service coverage,’ Mr Tsang added.
In addition, its liquidity profile has improved substantially, without material refinancing needs in the near term, Moody’s noted. The Reit’s debt/capi-talisation leverage has fallen to 30 per cent, from 47 per cent as of Sept 2009. The Reit’s major borrowing, a new $175 million term loan, is only due in December 2012.
But Moody’s also noted that while new sponsor AMP’s ‘established market presence and solid track record’ could benefit AIMS-AMP Capital Industrial Reit as it pursues growth and seeks new funding, AMP still needs to establish a track record in managing the Reit’s business as planned.
MapleTree – BT
Mapletree buys $68m warehouse
The warehouse in Japan has a property yield of 7.26%
MAPLETREE Logistics Trust acquired its ninth piece of property – a warehouse – in Japan for about $68 million, announced its managers, Mapletree Logistics Trust Management Ltd (MLTM), yesterday.
The warehouse has a property yield of 7.26 per cent, higher than the implied property yield of its existing Japan portfolio of 4.5 per cent.
Based on the actual nine-month financial results for 2009, the proforma financial effect of the acquisition on the annualised distribution per unit is an additional 0.103 cents or 1.75 per cent, assuming a unit price of 69 cents.
The warehouse, which is located in Chiba on freehold land, is leased to a major Japanese multinational corporation.
‘We are very pleased with the acquisition of this property, which is located in a popular logistics hub for in-land distribution for the Kanto region,’ said Chua Tiow Chye, chief executive officer of MLTM.
‘We continue to find the Japan logistics market attractive due to its breadth and depth which is currently unmatched in Asia. We will continue to expand our portfolio in Japan by selectively acquiring yield-accretive logistics assets of good quality and location.’
The acquisition, which will be fully funded by debt, is expected to be completed in Q1 2010, and brings Mapletree’s Japan portfolio to about 43 billion yen in value.
In November, the trust launched a private placement of 115 million new units to raise up to $82 million in order to create debt headroom for the funding of the acquisition.
The private placement had been launched in order to finance two local acquisitions – a six-storey warehouse in the west of Singapore and a multi-storey warehouse in the east of Singapore, for about $43 million and $34 million, respectively.
These acquisitions are expected to be completed by the end of this month.
Mapletree’s latest logistics play in Japan comes on the back of an announcement by its sponsor , Mapletree Investments Pte Ltd, that it had signed a memorandum of understanding on a joint venture with Itochu Corporation to develop logistics facilities in Japan, earlier this month.
MI-REIT – BT
MI-Reit to defer completion of acquisition deal
It gives update on use of rights issue proceeds, announces board changes
MACARTHURCOOK Industrial Reit (MI-Reit), which plans to buy four industrial buildings from its new co-sponsor AMP Capital Holdings, will defer completion of the deal to Jan 11, 2010.
In filings to the Singapore Exchange on Dec 24, the industrial trust also gave an update on the use of proceeds from its recent rights issue and announced a change of name, as well as changes to its board.
In November, the Reit unveiled a combined debt-and-equity-raising plan involving the placement of new shares to new investor AMP as well as existing sponsor AIMS Financial Group and other cornerstone investors, followed by a rights issue and a new term loan. The plan would raise $430 million, part of which would be used to buy four properties from AMP, which would come in as a co-sponsor.
Following the changes, the name of the Reit has been changed to AIMS-AMP Capital Industrial Reit from Dec 24. The names of the Reit’s manager and property manager have also been changed.
AIMS-AMP Capital Industrial Reit has also appointed two new non-independent, non-executive directors and announced three resignations from its board – an executive director, a non-independent, non-executive director and a non-independent, non-executive deputy chairman.
The Reit has completed its rights issue and has issued 975.6 million new rights units, bringing the number of units in issue to 1.46 billion.
In an update on the use of the proceeds from the rights issue, AIMS-AMP Capital Industrial Reit said $82.5 million of the gross proceeds of $155.1 million raised from the rights issue has been used so far. Of the $82.5 million, $39.9 million was to repay a bridging loan from Standard Chartered Bank, and $27.3 million was used to repay part of a $202.3 million term loan.
As for the planned acquisition of the four properties from AMP for a total of $68.6 million, the Reit said the conditions precedent under put and call option agreements relating to the properties were only met on Dec 24, so completion of the acquisition has been deferred. The Reit’s manager has, however, exercised all of the put and call option agreements.
AIMS-AMP Capital Industrial Reit also said the lease with the current master tenant of 23 Tai Seng Drive – one of four properties the Reit has agreed to buy – has been terminated as part of the conditions needed for the sale to proceed.
REITs – BT
Reit takeover guidelines require closer look
WHAT exactly does it mean when a Reit is taken over? In the case of other corporate entities, it’s fairly clear that when a general offer is made after the 30 per cent trigger point is reached, control of the company and the subsequent economic decision-making will pass into the hands of the successful takeover party. With Reits though, the situation is not as clear – mainly because economic decision-making does not lie with shareholders but rests with the Reit manager instead.
It was in June 2007 that the Securities Industry Council announced that the Singapore Code on Takeovers and Mergers will be extended to Reits – about five years after the first Reit was floated on the SGX. This means a party whose stake in a Reit hits the 30 per cent threshold would have to make a general offer for remaining units in the Reit. This is the same as for any listed company on the Singapore Exchange.
But Reits are unlike other listed entities because they are externally managed by a manager appointed by the trust.
In the case of other companies, anyone owning the controlling block of shares can control the company’s management, assets and cashflow.
But when you buy units in a Reit, you own its assets but not the manager. So even if a party owns a controlling stake in the trust, it has no control over distribution of its cashflow as this rests with the Reit manager, as spelled out in the trust deed as well as the Reit guidelines.
One could thus argue that gaining a controlling block of units in a Reit does not necessarily give you control of the trust’s underlying economics, which is vested with the manager.
Another example of the influence that a Reit manager has over the trust’s business is that the manager gets to recommend what assets the trust should buy and on what terms – including pricing and timing of the acquisition. This includes purchases from the Reit’s sponsor, which may also own the manager.
What this means it that if a new entity takes control of a Reit manager, one could argue that control of the Reit’s economics has actually passed to this new investor, even if this party did not buy any units in the Reit or bought less than the 30 per cent threshold that will trigger a takeover offer. The new investor could be prepared to pay a premium for the stake in the Reit manager but not for units in the Reit. In this instance, the new investor would have managed to take control of the Reit’s manager – and the trust’s economics – without making an offer to other unitholders.
In another scenario, even if the incoming investor in the Reit does reach the 30 per cent mark and makes a general offer to other unitholders, it could structure a deal such that the price at which it buys the Reit units reflect no or low premium; in exchange, it pays a handsome premium for a stake in the Reit manager. Hence, current guidelines allow an incoming investor to shift value between units in the Reit and the price of the management company.
The long and short of it is that Reit unitholders are deprived of an offer – or a good offer. What’s more, bad Reit managers are rewarded when an incoming investor pays a premium for the Reit manager as a cheap way to gain control (and where the premium paid for management control is not made available to minority unitholders) instead of making a general offer for the Reit and having to pay a premium for units in the Reit.
There is thus a need for the authorities to study whether transfer of ownership in the Reit manager is tantamount to a passing in control of the Reit itself.
Current interpretation of takeover guidelines for a Reit – defined as gaining control of at least 30 per cent ownership of the trust but without any reference to the Reit manager – is open to being exploited by incoming investors looking for a cheap way to control a Reit as well as bad Reit managers who’ll be handsomely rewarded in the process for their stake in the Reit management company.
The takeover guidelines for Reits require a closer look. Sure it will not be easy. How does one define passing of control of a Reit manager? Should it be when an incoming investor buys a 20 per cent stake in the management company? Or should the limit be set higher – at say, 50 per cent? And requiring the investor to make a general offer for the Reit itself could also have other implications. What happens if this party then turns out to be a bad manager for the Reit? If other unitholders subsequently want to get rid of it, they may not be able to muster enough support to pass a resolution at an EOGM to oust the manager.
Then there will be cries from other quarters that such rules would stifle the property fund management industry in Singapore. There must be room for pure Reit managers, who do not take any stake in the Reit, goes the argument. But such a breed of managers may not have their interests fully aligned with unitholders’, and may engage in activities that boost their fee income but which may be detrimental to unitholders – such as buying assets that could be earnings dilutive but which would enable them to cream off a nice acquisition fee and boost their management fees as the value of the Reit’s deposited property increases.
Still, the issue of when the control of a Reit passes on warrants a re-look by the authorities. This will protect the interests of minority investors as well as the reputation of Singapore as a Reits hub in Asia.