Net Property Income (NPI) for FY2009 registered an increase of 48.5% to $36.9 million. DPU for the full year is 8.925 cents.

Actual NPI is not far off from our estimates of $35.2 million. However DPU is 7.2% lower than our estimates. Fourth quarter DPU was 1.875 cents, which was 20% lower than the three preceding quarters of 2.35 cents, even though the fourth quarter DPU comprised retained distributions from first quarter through third quarter.

Asset value declined 4.5% from $555.4 million in FY2008 to $530.3 million in FY2009. In addition, MIREIT took a $20 million provision to its balance sheet as it anticipates the decline in asset value of the IBP development building it will acquire upon completion of construction in fourth quarter 2009. NAV per unit fell from $1.29 in FY2008 to $1.09 in FY2009.

MIREIT got a second extension on its debt to repay $201 million, extended to 31 Dec 2009 with an interest margin of 5%. It has another 1.5 billion JPY due on 18 Dec 2009. Furthermore it still requires funding of $91 million for the IBP building. Current gearing is 41%. If the IBP building is to be debt-funded, gearing will rise to 47%.

Although MIREIT has gotten an extension on its debt, the funding need is still present and pressing. Other than obtaining a straight bank loan, the other alternatives would be divesting assets or a equity fund raising. Selling assets in a value declining environment would not value eroding. We believe a rights issue is imminent and although highly dilutive, is the best solution to its funding needs from a long-term viewpoint. We estimate MIREIT would need to raise $100 million to fund its IBP acquisition. Gearing would also be lowered to 35%, which is a comfortable level. In our calculation, we assume a 1-for-1 rights, which would approximately doubles the issued units.

MIREIT has maintained an occupancy rate of 98.6% as at 31 March 2009. We retain our top line assumptions, however we adjusted our borrowing cost to reflect the higher margin. We adjusted down our DPU forecast for FY2010F from 8.59 cents to 8.28 cents. If MIREIT raises equity through a rights offer, DPU would be diluted to 4.24 cents. MIREIT’s share price has recovered in-line with the market, however we feel investors are still unclear of the refinancing plan and that will bog down investment sentiments in the REIT. We retain our Hold recommendation with a revised fair value of $0.39 as we lower our beta and increase cost of debt assumptions. We believe a re-rating is due for the REIT sector as most REITs had resolved their short term funding needs.

MI-Reit meets terms for loan extension

MACARTHURCOOK Industrial Reit (MI-Reit) yesterday said that it has satisfied all conditions to get a 60-day extension for its $220.8 million loan facility, which was originally due to expire today.

With the extension, the loans will instead be due on June 16 this year. MI-Reit’s manager remains in advanced negotiations with its lenders in relation to the refinance of the facility, the Reit said.

MI-Reit first said on March 31 that its lenders, National Australia Bank and Commonwealth Bank of Australia, had granted it a 60-day extension for the $220.8 million loan facility. But the extension for the property trust was subject to documentation and satisfaction of certain conditions, which have now been satisfied, MI-Reit said.

On April 1, Moody’s Investors Service downgraded MI-Reit’s corporate family rating from B1 to B2, and added that it was continuing its review of the rating for possible further downgrade. The downgrade reflected the existence of heightened liquidity pressure, given that the company had not yet secured definitive long-term refinancing for its loan originally due on April 18, 2009, Moody’s analyst Kathleen Lee said then.

As at Dec 31, 2008, MI-Reit had $225 million repayable within a year and its gearing ratio stood at 39.7 per cent. The trust lost half a cent to close at 26.5 cents yesterday.

Moody’s rating on MI-Reit cut over refinancing

MOODY’S Investors Service yesterday downgraded Macarthurcook Industrial Reit’s (MI-Reit) corporate family rating from B1 to B2, and added that it is continuing its review of the rating for possible further downgrade.

‘The downgrade reflects the existence of heightened liquidity pressure, given that the company has not yet secured definitive long-term refinancing for its $201 million loan originally due on April 18, 2009,’ said Kathleen Lee, vice-president/senior analyst and lead analyst for the trust.

‘The downgrade to B2 also reflects Moody’s concerns that MI-Reit has unfunded financing needs of $91 million for the completion of a put and call option over 4A International Business Park by Dec 31, 2009; a situation which means funding challenges, given tight credit market conditions and the trust’s limited financial flexibility, as all its assets are encumbered to existing lenders.

‘Moreover, MI-Reit’s committed acquisition was priced at a time when real estate values were still on the uptrend in August 2007, while the values of industrial property assets have softened from Q4 2008.’

In its release, Moody’s observed that on Tuesday, MI-Reit announced that its existing bankers, Commonwealth Bank of Australia Limited and National Australia Bank Limited, have granted a 60-day extension to June 16 for the $201 million maturing debt.

‘And while Moody’s recognises the steps taken by the trust to address this maturing loan, it remains uncertain as to what terms and conditions will accompany any refinancing exercise,’ Ms Lee said.

Moody’s review for possible further downgrade will focus on MI-Reit’s progress in, and the terms of, the refinancing efforts for its debt maturing on June 16; funding of the 4A International Business Park acquisition under a ‘sale and lease back’ call and put option by Dec 31 2009; and steps to refinance the company’s loan of 1.5 billion yen (S$23 million) due in December this year.

MI-Reit gets loan extension

MacarthurCook Industrial Reit (MI-REIT) on Tuesday said that its lenders, National Australia Bank Limited and Commonwealth Bank of Australia Limited, have granted the property trust a 60-day extension for its existing S$220.8 million loan, which matures on April 18 this year.

This extension is subject to documentation and satisfaction of certain conditions which are within the control of MI REIT, the trust said. With this extension, the loan facility will be due on June 16 instead. ‘The manager remains in advanced negotiations with its lenders in relation to the refinance of the facility,’ the trust added.

MI-REIT’S shares gained 0.5 cents to close at 23 cents yesterday.