Tag Archives: Cambridge Industrial Trust

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.

Source : Business Times – 19 Nov 2009

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.

Source : Business Times – 18 Nov 2009