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.

Rivals in MI-Reit tussle turn to newspaper ads

Both set out their respective positions ahead of Monday’s EGM

THE managers of MacArthurCook Industrial Reit (MI-Reit) and Cambridge Industrial Trust (CIT) – its single largest shareholder – have taken a very public battle for control of MI-Reit to the newspapers.

Yesterday, both spent thousands of dollars to take out full page advertisements setting out their respective positions ahead of an extraordinary general meeting next Monday.

MI-Reit is seeking unitholder approval for a $217 million share placement and rights issue package, which it says is critical if the Reit is to survive into the new year.

It has to refinance $226 million in loans and meet a $90 million obligation to buy the 1A International Business Park property, both by the end of the year.

CIT – led by Chris Calvert, the former CEO of MI-Reit’s manager – is arguing that the share placement destroys value for present unitholders.

MI-Reit is seeking to issue some 83 per cent of units outstanding at a ‘massively dilutive’ 70 per cent discount to net asset value, Mr Calvert said. He is urging other unitholders to reject the recapitalisation plan and to support a motion, to install CIT as manager of MI-Reit at another meeting of unitholders to be convened in due course.

That that would give MI-Reit access to a CIT subordinated loan facility, which could pay in full its $90 million obligation to purchase the building at IBP, Mr Calvert said yesterday in a statement to unitholders.

He added that CIT expects to be able to refinance MI-Reit’s loans maturing at the end of the year with takeout debt financing ‘on substantially equivalent terms’. The loans would be secured against more than $500 million of unencumbered assets.

‘Through managing both CIT and MI-Reit, (we expect) to generate economies of scale associated with an enlarged asset pool. This will result in achieving cost savings for both unitholders in a number of areas, including property management costs, valuation fees and others derived from having increased purchasing power,’ Mr Calvert said. He added that there was no intention to merge the two Reits and that it was also not seeking to liquidate MI-Reit’s assets.

MI-Reit hit back yesterday with a point-by-point rebuttal of a CIT statement issued on Monday setting out CIT’s opposition to MI-Reit’s financing plan.

Nicholas McGrath, CEO of MI-Reit’s manager, said unitholders ‘should not allow themselves to be distracted by such analyses that are inaccurate, incomplete and misleading’.

‘It also does not discuss the key benefits of the transactions,’ Mr McGrath said, which was removal of financing risk, reduction of total leverage and an enhanced portfolio and tenant base.

He added that it was wrong to say $2.1 million was payable in underwriting fees to Standard Chartered, pointing that commissions were shared among all bookrunners, and also rebutted a claim by CIT that a fee-payment arrangement was ‘double dipping’.

Yesterday, George Wang of AIMS Financial Group – the present sponsor of MI-Reit and which along with AMP Capital Holdings and ‘cornerstone’ investors will participate in the controversial placement – raised his deemed stake to 9.96 per cent or 26.54 million shares through the further purchase of 3.5 million units at 40.2 cents apiece.

CIT, with 26 million units, has a 9.768 per cent stake.

Bid launched to oust manager of MI-Reit

Cambridge Industrial Trust against plan to recapitalise; offers itself as replacement

A FIGHT for control of MacArthurCook Industrial Reit (MI-Reit) has broken out after Cambridge Industrial Trust, a 9.76 per cent unitholder, yesterday said it opposes a recapitalisation exercise and is calling a meeting to oust MI-Reit’s present manager and install itself instead.

Chris Calvert, chief executive officer of CIT’s manager, said the exercise – to be voted on next Monday – was ‘unfair and value destructive’ because it was pegged at a 70 per cent discount to net asset value.

MI-Reit has to re-finance $226 million in loans and meet a $90 million obligation to buy the 1A International Business Park property, both by the end of the year, after a number of extensions of deadline.

It appeared to have found a solution earlier this month when it announced a plan to place out some 221 million units – 83 per cent of existing units outstanding – to AMP Capital Holdings, present sponsor AIMS Financial Group and other ‘cornerstone’ investors, at 28 cents a unit.

AMP and AIMS would be co-sponsors of the Reit, which following the transaction would then undertake a fully-underwritten two- for-one rights issue. The placement and rights issue would raise gross proceeds of $217 million and the manager has also arranged for another $215 million in loans.

Mr Calvert, who was formerly CEO of MI-Reit’s manager, said the whole deal ‘in our view is massively value destructive.’ The placement price of 28 cents a unit was 70 per cent discounted to the Reit’s net asset value of 94 cents a unit, and 32 per cent to its volume weighted average price before the announcement of 41.2 cents.

But the steep discounts were necessary to secure the investors’ backing, said Nicholas McGrath, CEO of MI-Reit’s manager. ‘There is a certain risk that (creditor) banks will force the Reit into liquidation,’ so that its assets will attract only firesale prices. ‘It is my judgement that if investors vote these proposals down they will lose all their money,’ he said. ‘It is a very stark choice.’

He added that the $90 million purchase – now valued at just over $70 million – had been arranged by Mr Calvert during his tenure and was weighing the Reit down. ‘The monkey on the back of MI-Reit is we have a $90 million obligation which no bank will touch,’ he said.

CIT said it had a ‘value-accretive’ solution and yesterday issued statements urging other unitholders to block the deal and to support a meeting it is calling to install itself as MI-Reit’s manager. As manager of both CIT and MI-Reit, it would then ‘implement an initiative to take advantage of an enlarged pool of assets to benefit all investors,’ it said.

Mr Calvert said one of the options was a merger between CIT and MI-Reit. Discussions were held early this month, pricing MI-Reit at around 1.1 CIT units or about 48 cents at closing price last Friday. ‘Consolidation is one of the options,’ Mr Calvert said. The alternative was to liquidate the assets and return cash to unitholders, and he said he was confident of getting a reasonable discount on net asset value.

But Mr McGrath said CIT was ‘opportunistic’ and ‘disingenuous’ as it had picked up its close to 10 per cent stake only after the announcement of the recapitalisation exercise. ‘There is no offer from them, there is no plan, no funding,’ he said.

Mr Calvert said CIT would be able to secure financing, although he did not provide details. The present plan also gives millions of dollars in fees and discounts to the parties involved – Standard Chartered Group for placement and underwriting fees, plus management fees and cost recoveries for AIMS, he said. ‘It is unitholders who are losing out,’ he said.

Other opponents to the deal are also rallying. Mohamed Salleh of Second Chance Properties, who said he owns 5 million units personally, said he could not understand how the favoured investors got such a good deal. ‘It’s totally unfair. Why can’t they offer it to all unitholders? If they price (a rights issue) so low I myself will apply for more units, there is no need to get it underwritten.’

Another unitholder, Ang Kong Meng, yesterday circulated a letter to unitholders, calling the proposed transactions ‘most unfair, unethical and oppressive to all existing unitholders’. The directors ‘have over emphasised the going concern problem of MI-Reit’ to induce unitholders to support them, he said.

MI-Reit yesterday closed at 40.5 cents, up five cents, or 14 per cent, on volume of 23 million units. George Wang, who heads AIMS, said he was responsible for ‘about half’ the trades buying up units to bolster his and MI-Reit’s position ahead of the meeting on Monday.