MAS blocks bid by CIT to manage MI-Reit

THE battle for control of MacArthurCook Industrial Reit (MI-Reit) appears to be over after the Monetary Authority of Singapore (MAS) blocked a rival from managing MI-Reit because of a potential conflict of interest.

Appendix 2 of MAS’s Code on Collective Investment Schemes sets out the responsibilities of property funds, and it is understood that this was the basis for MAS’s decision.

Cambridge Industrial Trust (CIT), which has been angling to take over as manager of MI-Reit, is also in the industrial property space.

‘There’s a clear conflict of interest,’ said Nicholas McGrath, who heads MI-Reit’s manager.

‘If there’s a property to be bought, where would they allocate it to?’

This comes just three days before a crucial extraordinary general meeting on Monday when MI-Reit unitholders will vote on a $400 million debt-and-equity rescue package that its manager says must be approved if the Reit is to survive.

MI-Reit needs to refinance $226 million in loans and meet a $90 million obligation to buy a property in International Business Park by the end of the year.

But CIT – which bought a close to 10 per cent stake in MI-Reit only after it announced the rescue package – said the refinancing deal destroys value as new investors would be getting a large stake in the Reit, massively diluting existing holdings.

It instead proposed that unitholders appoint CIT’s manager to manage MI-Reit, a move that MAS has now torpedoed.

Its chief executive Chris Calvert (who used to manage MI-Reit) had said that there had been talks to secure financing from National Australia Bank and others, and that CIT could use its own debt facility to fund some of MI-Reit’s most immediate needs.

Yesterday, Mr Calvert remained defiant despite admitting that all of CIT’s proposals to rescue MI-Reit had been contingent on it taking over as manager. He said CIT was exploring other options and would still vote against MI-Reit’s plan on Monday.

But Mr McGrath said that CIT owed a duty to its own unitholders to justify risking their capital by blocking the recapitalisation proposal.

CIT spent just over $10 million to buy up 26 million units earlier this month but may lose its investment if the rescue plan is scuppered and MI-Reit is forced into liquidation, he said.

‘The directors and trustee of CIT need to explain to CIT’s unitholders how they justify the decision to risk their capital without proposing any alternative other than possible receivership,’ Mr McGrath said.

He called on CIT to support its recapitalisation proposal.

‘There is no other proposal which addresses the issues which must be immediately addressed for MI-Reit.’

CIT is MI-Reit’s second largest shareholder after George Wang of AIMS Financial Group, its present sponsor.

Yesterday, MI-Reit lost 3.5 cents or 8.7 per cent to close at 36.5 cents in the market as investors fearing dilution bailed out of the trust.

CIT shares lost half a cent, closing at 42 cents.

Businessman Yap Chin Kok of logistics firm YCH Group sold some 8.3 million CIT units, taking his direct and deemed holding to below 6 per cent. The sales took place on Monday.

CIT says no intention to take over MI-Reit

It now cannot make offer in next 6 months unless SIC gives blessing

CAMBRIDGE Industrial Trust (CIT) has formally said that it does not have a current intention to make an offer for rival MacArthurCook Industrial Reit (MI-Reit).

Under the Singapore takeover code, this announcement means that CIT is now forbidden – unless it has the blessing of the Securities Industry Council – from making an offer within the next six months.

Chris Calvert, chief executive of CIT’s manager, said a takeover was ‘too premature’ and that statements carried in BT implying that CIT was considering a merger of the two Reits were ‘misinterpreted’.

Managers of both Reits have been vying for control of MI-Reit after MI-Reit’s manager announced a recapitalisation plan which it said would rescue MI-Reit from certain liquidation.

MI-Reit needs to refinance $226 million in loans and meet an obligation to buy a $90 million property at the International Business Park.

The rescue plan would see MI-Reit placing 221 million new units to AMP Capital Holdings, present sponsor AIMS Financial Group and other ‘cornerstone’ investors, at 28 cents a unit, and going through a rights issue before taking on a new term loan.

But CIT – a recent shareholder with just shy of 10 per cent of MI-Reit – is opposing the plan, saying that it destroys value because it is priced too far below net asset value. It is urging unitholders to reject the rescue plan at an extraordinary general meeting next Monday, and to appoint CIT’s manager to manage MI-Reit.

Yesterday, Nicholas McGrath, CEO of MI-Reit’s manager, said that CIT had yet to confirm if it could legally become the manager of two competing industrial Reits. ‘There’s a clear conflict of interest,’ he said. ‘If there’s a property to be bought, where would they allocate it to?’

He added that CIT has not confirmed if it has the ability to meet MI-Reit’s urgent funding needs.

There was speculation yesterday that CIT – which called a trading halt in the afternoon – had run into regulatory issues.

CIT had earlier released some details of a ‘value-accretive’ proposal to rescue MI-Reit.

It intends to refinance MI-Reit’s loans with takeout financing secured against the assets of both Reits, and said that it will also save costs and gain purchasing power from economies of scale.

A CIT subordinated loan facility could also be used to pay off MI-Reit’s $90 million International Business Park commitment, Mr Calvert said.

CIT was last traded at 42.5 cents and MI-Reit at 40 cents.

CIT, NAB in talks to fund MI Reit

Cambridge Industrial Trust (CIT) chief executive Chris Calvert said the company is in talks with its majority stakeholder, National Australia Bank (NAB), about potentially funding any recapitalisation of MacarthurCook Industrial (MI) Reit.

NAB is currently working in different capacities with both Singapore-listed property trusts but says it has appropriate measures to prevent conflicts of interest arising in this situation.

NAB acquired a 56-per-cent stake in CIT in August last year and has acted as a financier to the group. It is also serving as a financier and underwriter to MI Reit on a number of recapitalisation transactions to help address the Reit’s critical funding issues.

MI Reit’s recapitalisation plans include a rights issue in which NAB is one of the underwriters.

CIT, which acquired a key 9.8-per-cent stake in MI Reit earlier this month, launched a push to gain control of the trust’s management this week. It also vowed to block MI Reit’s recapitalisation plans at an extraordinary general meeting next Monday, calling them “massively value-destructive”.

While CIT has yet to announce where it plans to source this funding, Mr Calvert told Dow Jones in a Tuesday interview that it is talking with NAB and other banks about prospective arrangements.

“We would obviously like them to be part of the debt solution for our alternative and we would look to engage with them post this EGM to reach an appropriate solution. There have been discussions with the existing banks and we have no reason to believe that they wouldn’t want to enter into discussions with us to refinance the portfolio should this (recapitalization) EGM get voted down,” he said.

He said any “respective conflict issues” were a matter for NAB.

Yesterday, CIT said in a statement that it has no plans to merge itself with MI Reit.

It is “in the process of finalising refinance and equity solutions” to address problems facing MI Reit while preserving its value for existing unitholders, the statement added.

After releasing its statement, CIT asked for trading of its units to be halted.

In July, NAB, through its wholly owned Antares nabInvest Trust, bought S$5.3 million worth of units in a S$28 million CIT private placement.

Of the S$28 million raised, CIT says $10.3 million has been used for the acquisition of its stake in MI-Reit, which was made in a series of purchases shortly after the Reit announced its recapitalization plans Nov. 6.

A NAB spokeswoman said while the bank does have lending, underwriting and bookrunning relationships with MI-Reit it has “appropriate conflict management arrangements between the business supporting MacarthurCook Industrial Reit and any NAB personnel involved with Cambridge Industrial Trust.”

MI-Reit manager hits out at rival CIT’s proposal

Subordinated loan likely more pricey than MI-Reit’s cost of equity

THE battle for control of MacArthurCook Industrial Reit (MI-Reit) continued yesterday with MI-Reit’s manager Nicholas McGrath slamming a rival proposal from Cambridge Industrial Trust (CIT) as ‘entirely ingenuous’.

MI-Reit is asking unitholders to approve next Monday a $430 million rescue package involving a share placement to ‘cornerstone’ investors, a rights issue, and $215 million in new loans.

The troubled Reit needs the money to refinance $226 million in loans and meet a $90 million obligation to buy the 1A International Business Park (IBP) property, both by the end of the year.

But CIT, which bought a 9.76 per cent stake in MI-Reit after the announcement of the rescue package and is angling to take over management of MI-Reit, said the recapitalisation exercise destroyed value for unitholders as the discount to net asset value was too steep.

Non-sponsor existing unitholders post-transaction would be left with just 40 per cent of total holdings, CIT said, from over 70 per cent at present.

It is instead proposing itself as manager of MI-Reit and has pledged an ‘initiative to take advantage of an enlarged pool of assets to benefit all investors’, Chris Calvert, chief executive officer of its manager, said on Tuesday.

He said MI-Reit investors would benefit from access to a subordinated loan facility which CIT holds, and which it could use to fully pay off its $90 million obligation to buy the IBP property.

But in an interview yesterday with BT, Mr McGrath said a subordinated loan would likely be more expensive than MI-Reit’s cost of equity and much higher than the 350 to 450 basis points over Sibor that it will pay for its negotiated term loan.

Mr McGrath added that MI-Reit’s aggregate leverage would increase, while CIT, with just $13 million in cash, has little debt overhead to increase its own gearing. ‘Any which way you put it, they will need to do capital raising and so far they’ve said nothing about that,’ he said.

He admitted that an orderly sale of MI-Reit’s assets – which has been suggested in some quarters, as its units are trading far below net asset value – might realise close to market value, or about 90 cents per unit. ‘But I’m entirely uncomfortable with losing control of the process,’ Mr McGrath said, adding that if creditors force a quick firesale, investors might be left with nothing.

The steep discounts were necessary because the Reit had to urgently raise a minimum of $125 million – twice its market capitalisation in June – to rebalance its capital structure so that it could take on new loans, Mr McGrath said.

In a report released on Tuesday, Phillip Securities analyst Lee Kok Joo said that whatever the outcome of the extraordinary general meeting on Monday, ‘the risk is more on the part of CIT unitholders rather than MI-Reit unitholders’ but said the proposal opens up the possibility that MI-Reit unitholders’ stakes would not be heavily diluted.

According to its calculations, MI-Reit offers a potential FY2011 distribution per unit (DPU) of 1.89 cents, which translates into a dividend yield of 11 per cent based on the rights price of 15.9 cents, if the proposed transactions go through. ‘For investors who are not keen, we maintain our ‘sell’ recommendation,’ Phillips said.