Monday, November 23, 2009

MI-Reit manager seeks clarification from CIT directors

It points out potential conflicts of interest as the two linked to NAB – lender to both Reits

THE manager of MacarthurCook Industrial Reit (MI-Reit) issued a statement yesterday seeking clarifications from two directors of Cambridge Industrial Trust (CIT).

MacarthurCook Investment Managers Asia, MI-Reit’s manager, spelt out the potential conflicts of interest facing Ian Smith and John Wood, two non-executive directors of CIT’s manager. Both Mr Smith and Mr Wood are representatives of nabInvest’s effective 56 per cent controlling stake in CIT. nabInvest is, in turn, a wholly owned unit of National Australia Bank (NAB), which is an existing lender to both CIT and MI-Reit.

The issue arises following a revelation last week by Chris Calvert, CEO of CIT’s manager. Mr Calvert, formerly the CEO of MI-Reit’s manager, said that his company is in talks to secure financing from NAB, and that CIT could use its own debt facility to fund some of MI-Reit’s most immediate needs. Although NAB has financing links to both trusts, it said in a Dow Jones article that there are appropriate measures to prevent conflicts of interest.

MI-Reit took CIT to task for the statements made in the Dow Jones article. It said they may have misled readers to believe that NAB was supportive of CIT’s initiative. However, the bank has written to it on Oct 2 that ‘it has a principled view of not funding hostile takeover bids against client entities’.

Among other things, MI-Reit also questioned if the two directors have performed their fiduciary duty to nabInvest’s clients. It asked if Mr Smith and Mr Wood had sought authorisation from NAB for Mr Calvert to make the statements he did, and to be involved in the discussion about a merger suggestion thrown up by Mr Calvert earlier.

MI-Reit also made another call for the board and managers of CIT to declare its position regarding the resolutions that will be proposed at an extraordinary general meeting today, after the latter withdrew some of the alternatives raised by itself last week.

Although CIT, which owns 9.76 per cent of MI-Reit, has maintained its intention to vote against the resolutions, it is quiet on its recommendations to other MI-Reit’s unitholders, who had earlier been urged to vote against the resolutions as well.

MI-Reit’s manager gave CIT a deadline which ended at 2 pm yesterday, to explain the basis of its recommendation to other unitholders. However, CIT did not respond to that call by press time yesterday.

Over the past week, managers of the two trusts had been locked in a tussle over a recapitalisation deal which MacarthurCook Investment Managers Asia said will help avert a liquidation of the Reit’s assets. With $226 million worth of loans maturing by the end of the year, and a $90 million obligation to meet, MI-Reit is seeking to raise cash by issuing 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.

The price, representing a 70 per cent discount to MI-Reit’s net asset value, is the bugbear of CIT, which is arguing that the share placement would destroy value for present unitholders.

In MI-Reit’s filing to the Singapore Exchange last Saturday, it took CIT to task for the less than concrete alternatives. It noted that CIT’s manager (CITM) has no financing arrangement in place for MI-Reit and that ‘CITM’s discussions on the alternative options are currently only preliminary and exploratory in nature’.

At the same time, the Monetary Authority of Singapore has indicated that it will not approve CITM managing both CIT and MI-Reit, a scenario suggested by CIT early last week. MI-Reit wants CIT to state its recommendation to MI-Reit unitholders clearly, and to back it up by a quantitative analysis.

Source: Business Times, 23 Nov 2009

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