Wednesday, November 25, 2009

MI-Reit moves ahead with its plans

Its strategy will involve leaning on cornerstone investors

WITH the dust finally settling after the tumultuous past few weeks, the folks behind MacarthurCook Industrial Reit (MI-Reit) are understandably keen to leave the past behind them.

But, perhaps of greater interest to its unitholders are the plans that its managers have for the trust, which they shared with The Business Times yesterday.

‘I think it’s important that we draw a line across what has happened and leave the past behind us,’ said Nicholas McGrath, CEO of MI-Reit’s manager, referring to the very public spat that it had with rival and substantial shareholder, Cambridge Industrial Reit (CIT).

‘What we need to do now is look ahead and focus on our future plans. I believe we have a very strong platform for growth, thanks to our sponsors, as well as great intellectual capital and Reit management expertise from them, and now, a strong balance sheet,’ he said.

Mr McGrath’s first job would be to pay off the debt accumulated as a result of decisions undertaken by the previous management – namely, the $226 million in loans and the $90 million obligation to buy a property, for which MI-Reit had to recently mount a highly controversial refinancing plan.

This refinancing plan was heavily criticised by CIT, which had bought a near 10 per cent stake in MI-Reit after the latter announced plans to raise $217 million from a placement to cornerstone investors and $215 million from a rights issue. CIT said that the recapitalisation exercise destroyed value for unitholders as the discount to net asset value was too steep – and proposed itself as manager of MI-Reit. What followed was a weeks-long slugging match that saw both sides take out advertisements in the newspapers to defend their positions.

Eventually, CIT’s bid to take control of MI-Reit was blocked by the Monetary Authority of Singapore (MAS), and CIT’s chief, Chris Calvert, was forced to backtrack on what he had said. But disgruntled MI-Reit unitholders, already stirred up by the debate that had gone on before, continued to take MI-Reit’s managers to task at Monday’s extraordinary general meeting to vote on the refinancing plan. While the plan was voted through at the meeting, Mr McGrath recognises that the issue is not entirely resolved – and will need to be dealt with, along with his other plans for the Reit.

‘There will have to be lots of communication with our investors, both retail and institutional, over the next 12 months. We will maintain a very transparent and open environment,’ he said.

Desmond Ong, managing partner of Eversheds Singapore and adviser to the MI-Reit board, noted: ‘The board is determined to repay the faith shown in them by the majority of the unitholders after the events of last week.’

Mr McGrath believed that the Reit will have a better story to tell. Once its existing debt is cleared off its books, by the end of the year, MI-Reit will be left with a stronger capital position – with 29 per cent leverage.

Greg Bundy, deputy chairman of AIMS, added: ‘That will also coincide with a re-rating of property assets, when the economy recovers. Nicholas has been conservative in rating MI-Reit’s assets – booking a 16 per cent decrease in property values when others like CIT have gone with 10 per cent and Mapletree Logistics with 5 per cent. So, MI-Reit should benefit nicely when property assets appreciate.’

Mr McGrath said that he intends to pursue a ‘prudent capital management plan’ which includes keeping the trust’s leverage at between 29 and 35 per cent, and ensuring that it only invests in assets that will boost its yield.

‘I will guard the distribution (to investors) with my life,’ he told BT yesterday.

Part of that valiant strategy will involve leaning heavily on the Reit’s cornerstone investors, AMP Capital Holdings and present sponsor AIMS Financial Group. MI-Reit intends to capitalise on their connections to boost its yields.

Mr McGrath shared that AMP has a warehouse facility which MI-Reit could soon add to its portfolio. While AIMS, an Australian company focusing on funds management, investment banking and real estate investment, has a very strong relationship with Singapore’s United Engineers Limited – whose biggest asset is its UE Tech Park warehouse – which MI-Reit could benefit from.

‘We have a very good pipeline of assets in Singapore; we could easily do $200 million worth of transactions in the next year,’ Mr McGrath said.

He also shared that AIMS would be able to take MI-Reit beyond Singapore – to Vietnam and China.

AIMS executive chairman George Wang, who now personally owns 40 million shares in MI-Reit, told BT: ‘MI-Reit cannot just buy assets in Singapore. It has to look at growth potential beyond that. And I believe China is the future, with its booming economic growth and massive logistics and manufacturing potential.’

Mr Wang said that he looked to the example of market leaders such as CapitaLand, which have recognised China’s potential.

‘During my next two years as chairman of MI-Reit, I intend to bring my resources and contacts to the table, and help the trust’s management to understand the Chinese market. I will introduce my connections to them and help them to understand the Chinese system, the Chinese people and the sort of risks and investments they can undertake.’

Mr Wang, who was born in Hainan, works very closely with China’s Tianjin government – a region which sees 15 per cent annual growth. ‘Tianjin is the next Shanghai. Many large companies have set up there – Samsung, Motorola – and it has a lot of potential for growth,’ he said, adding that he intends to position MI-Reit to tap on that growth.

He said that he intends to hire more locals – more Singaporeans for MI-Reit’s presence in Singapore, and mainland Chinese for its future expansion into China – including for senior positions. ‘I believe that if you want to do business in Asia, you need to have people who understand Asia.’

‘When I step down as chairman in two years’ time, there will be a difference in MI-Reit. I intend to work very hard for shareholders,’ Mr Wang said.

Source: Business Times, 25 Nov 2009

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