Category: MI-REIT
MI-REIT – BT
MacarthurCook Reit to fight any hostile bid
Trust now keen on buying two Asian properties, not 10
THE manager of Singapore-listed MacarthurCook Industrial Reit, a subject of takeover speculation, said yesterday that it will fight any hostile bid to acquire the trust.
‘I can guarantee you that it will be contested. We certainly won’t let somebody just walk in the door and take over management,’ Craig Dunstan, managing director of Australia’s MacarthurCook Ltd, told Reuters in an interview.
He said the Australian property manager now controls 13.2 per cent of MacarthurCook Industrial, raising its stake from an initial 2.3 per cent when the trust was listed last April.
Singapore’s real estate investment trust (Reit) sector is expected to consolidate in the short term, and brokerages such as Goldman Sachs have cited MacarthurCook Industrial as a potential takeover target due to its diffuse shareholding structure.
The absence of a large controlling shareholder makes it easier for predators to buy a majority stake.
MacarthurCook Industrial’s share price fell 2.9 per cent yesterday, while the broader Singapore market was flat.
MacarthurCook Industrial and other Singapore Reits controlled by Australian firms have suffered the most in the current weak market due to concerns over their ability to raise debt or equity.
Allco Commercial Reit, which is planning to sell its Australia properties as embattled manager Allco Finance Group struggles to repay its debts, fell 8.1 per cent after Moody’s downgraded its credit rating further on Tuesday.
Mr Dunstan said MacarthurCook Industrial, which owns about $620 million worth of factories and warehouses, mainly in Singapore, will not meet its annual asset growth target of $500 million for the fiscal year to end-March 2009.
‘We’re not going to raise equity in today’s market at today’s prices, because that’s not the right thing to do for our current investors,’ he said.
MacarthurCook Industrial currently trades at around a 24 per cent discount to its net asset value of $1.30 a share.
The property trust dropped a $200 million equity fundraising exercise in January citing poor market conditions, and is now looking to buy two properties in Asia instead of the 10 it was considering initially, Mr Dunstan said.
‘Our responsibility is to generate good risk-adjusted returns for our current investors. They will continue to get a good return whether we buy another asset in the next 12 months or not,’ said Mr Dunstan, a former lawyer who founded MacarthurCook in 2002. — Reuters
SREITs – BT
MacarthurCook, Cambridge and Allco seen as potential takeover targets
CAMBRIDGE Industrial Trust, MacarthurCook Industrial Reit and Allco Commercial Reit are among potential takeover targets among Singapore real estate investment trusts (S-Reits), says Goldman Sachs in a report this week.
‘We believe that Reits with relatively smaller market caps, fragmented shareholdings or larger shareholders which may be open to exiting their stakes, and relatively high yields compared with sector peers are likely takeover targets,’ the report authored by analyst Leslie Yee said.
The current S-Reit climate, with disparity in distribution yields at which Reits in the same asset class are currently trading on the stock market, provides fertile ground for merger and acquisition (M&A) activities, the bank contends.
‘Hypothetically, a Reit trading at a lower yield that acquires a Reit trading at a higher yield, would be making an accretive acquisition, if the acquirer trades at the same yield post-acquisition,’ it added.
It may be easier for S-Reits to grow by acquiring other Reits as the traditional method of growing – through the acquisition of physical assets – has become more difficult. This is because the slump in S-Reit prices on the stock market has raised their distribution yields, making it harder for them to make yield-accretive acquisitions of properties.
Goldman Sachs said other factors that have brought forward M&A as a theme for the S-Reit space include the prices of certain Reits trading below net asset value, increasing openness of management teams discussing the possibility of M&A, and trade sales.
In mid-February, Macquarie MEAG Prime Reit’s (MMP Reit’s) manager announced a strategic review to enhance value for unitholders following the receipt of unsolicited bids made to Macquarie Real Estate, which holds a 26 per cent interest in MMP Reit.
‘We think this strategic review can lead among others to an outright sale of the Reit or sale of underlying assets on a piecemeal basis. There are precedents among the Australian Reits of acquisitions of entire Reits and piecemeal divestments of their properties. We see either of these actions as among the many ways in which Reits trading below book value can help realise book value,’ Goldman said.
‘We believe that MMP Reit’s efforts could cause shareholders of other Reits trading below NAV to seriously consider how best to unlock value. We note that Reits in mature markets like Australia divest assets on a piecemeal basis to optimise their portfolio, and we do not rule out S-Reits divesting individual assets to reconfigure their portfolios or even pay special dividends,’ it added.
‘Besides Reits’ takeovers, another possibility is the takeover of Reit managers. We note ARA Asset Management has stated it is keen to acquire other Reit managers,’ the report said.
The M&A theme will be positive for S-Reits. For large-cap Reits which trade at relatively low yields, M&A will create another avenue for growth. For smaller Reits trading at relatively high yields, investors should be able to cash in on premiums paid to buy out their respective Reits. ‘We expect the focusing of M&A as a theme by investors to result in narrowing of discounts to RNAV,’ Goldman said.
It also recommends investors to be ‘overweight’ on S-Reits given the defensive nature of these instruments and their relatively high distribution yields.
‘Based on our stress tests, we are comfortable that downside risk to our revised 12-month target prices is capped at about 14 per cent on bear case scenarios which we do not expect to materialise. In a flight to quality environment, we favour well-managed big-cap names, with debt capacity to fund acquisition growth, and which trade at discount to RNAV and show strong near-term organic growth.’
Goldman has upgraded office landlord CapitaCommercial Trust from ‘neutral’ to ‘buy’ and added it to its Conviction List of top ‘buy’ calls. It has also upgraded Ascendas Reit from ‘sell’ to ‘neutral’. The bank also has ‘buy’ recommendations for CDL Hospitality Trusts, K-Reit Asia and Suntec Reit. It has downgraded CapitaMall Trust from ‘buy’ to ‘neutral’, and MMP Reit from ‘neutral’ to ‘sell’.
MI-REIT – Phillip
3QFY08
MacarthurCook Industrial REIT (MIREIT) reported financial results for 3QFY08. MIREIT reported gross revenue of S$8.4 million and net property income of S$6.3 million. Distributable income amounts $5 million, translating to a DPU of 1.92 cents for the quarter and an annualised DPU of 7.62 cents.
Acquisitions during the quarter contributed to top-line growth. Gross rental revenue increased 14.5% compared to the last quarter and net property income rose 6.5%. However net income dropped 7.1% mainly due to higher management fee, borrowing cost and trust expense associated with an enlarged portfolio size. DPU for the quarter increased from 1.86 cents in 2QFY08 to 1.92 cents in 3QFY08.
MIREIT expanded its portfolio from 12 properties at IPO to 19 properties currently, with a further 3 in progress of completion. Asset size grew from S$316.2 million to S$512.6 million. NAV increased from $1.13 to $1.30. Current gearing stands at 34.4%. We note that gearing will increase to 40% upon completion of in-progress acquisitions.
Capital management. Including the completed acquisitions, MIREIT has debt of $176 million, which has an expected maturity in April 2009. MIREIT has in place derivative instruments to manage its borrowing costs.
If the base rate continues to stay low, we estimate that the effective interest rate will be 2.5%, however we have assumed a cost of debt of 3.5% in our valuation model to stay conservative.
Valuation and recommendations. MIREIT has no short term debt concern and the initial low gearing has given it the capability to expand with debt funding. Although it has delayed a capital raising exercise recently, there is no short term refinancing issue and gearing is within management’s target range of 40%-45%. We retain our revenue estimates at this point with a FY08F DPU of 7.76 cents, which would translate to a yield of 8.21%. We have raised the beta and risk premium used in our DCF model to account for investor’s lower risk appetite and the volatile market condition. Fair value derived from our model is lowered subsequently from $1.43 to $1.13. Maintain buy.
MI-REIT – BT
MI-Reit postpones fund-raising exercise
MACARTHURCOOK Industrial Reit (MI-Reit) is postponing its $200 million equity fund-raising exercise given the poor market conditions, the trust said yesterday.
‘We have taken into consideration the current turmoil in the international capital markets in reaching the decision to postpone the proposed equity fund- raising to preserve the value of unitholders’ equity,’ said Chris Calvert, CEO of MI-Reit’s manager.
The trust announced in December that it intended to raise up to $200 million in gross proceeds. But now, the proposed equity fund-raising will be postponed until ‘markets are more conducive’, the trust said.
MI-Reit had intended to use the proceeds of the exercise to refinance its recent property acquisitions in Singapore and Japan, thereby freeing up capital for further acquisitions.
Following the expected completion of its committed acquisitions in the fourth quarter ending March 31, 2008, the aggregate leverage of MI-Reit and its subsidiary and controlled entity Japan Industrial Property will be about 41 per cent – notwithstanding the equity fund-raising, the Reit said yesterday. ‘This gearing is comfortably within MI-Reit’s long-term target gearing of 40- 50 per cent,’ the trust said in a filing to the Singapore Exchange.
Stock markets across Asia have taken a beating this month on the back of turmoil in the global capital markets, brought on by the sub-prime loans crisis and fears of a recession in the United States.
In Singapore, the benchmark Straits Times Index has slipped 10.4 per cent since the start of the year. In contrast, MI-Reit’s stock has fallen 18.2 per cent, losing three cents to close at a one-year low of 90 cents yesterday.
MI-REIT – SGX
SGX-ST ANNOUNCEMENT
MI-REIT TO POSTPONE PROPOSED EQUITY FUND RAISING
We refer to the announcements by MacarthurCook Investment Managers (Asia) Limited, as manager of MacarthurCook Industrial REIT ( “MI-REIT”, and manager of MI-REIT, the “Manager” ), on 21 December and 27 December 2007 in relation to the proposed equity fund raising to raise gross proceeds of up to S$200 million.
Given current market conditions, the Manager has decided to postpone the proposed equity fund raising until markets are more conducive.
Mr Chris Calvert, Chief Executive Officer of the Manager noted, “We have taken into consideration the current turmoil in the international capital markets in reaching the decision to postpone the proposed equity fund raising to preserve the value of unitholders’ equity.”
The Manager had intended to use the proceeds of the proposed equity fund raising to refinance MIREIT’s recent property acquisitions in Singapore and Japan, thereby freeing up capital for future acquisitions.
Following the expected completion of its committed acquisitions in the fourth quarter of MI-REIT’s financial year ending 31 March 2008 ( “4QFY2008” ), the aggregate leverage of MI-REIT and its subsidiary and controlled entity, Japan Industrial Property Pte Ltd, will be approximately 41%, notwithstanding the equity fund raising. This gearing is comfortably within MI-REIT’s long term target gearing of 40% to 50%. MI-REIT has an investment grade credit rating which permits a gearing of up to 60%, under the Property Funds Guidelines.