The past week saw a tussle going on between the managers of Macarthurcook Industrial Trust and Cambridge Industrial Trust (CIT) as MI-REIT proposed a recapitalization exercise which was firmly rejected by Cambridge Industrial Trust Management (CITM) publicly. CIT had bought close to 10% of MI-REIT after the capitalization plan was announced and they proceeded to gather support from other shareholders to oppose the plan.

Even though CITM originally had something in mind, their plans were disrupted when MAS stepped in to announce that it was not possible for CIT manager’s to manage two different REITs as it might lead to conflict of interests. To add a twist to the story, the current CEO of CITM, Chris Calvert, was the ex-CEO of MI-REIT.

With uncertainty facing MI-REIT unitholders with no viable alternatives in sight, there was expected to be a large turnout at the EGM for investors to clear their doubts on this issue.

There was still a long line of people queuing up to gain entry to MI-REIT’s EGM yesterday as I arrived slightly after 2pm. Apparently, they were all proxies as there was another queue for shareholders which had already been cleared.

I made my way in and the meeting had already started as the CEO of MI-REIT, Nicholas McGrath, tried to present his re-financing deal that would enable the REIT to deal with its immediate debt repayment issue. He tried to explain that the unpopular plan to issue units at $0.28 to a group of cornerstone investors would only result in a 4 cents dilution to the existing price.

It was important that ALL the resolutions be voted through in order for the package to be implemented. Even if there was just one resolution that failed to get the majority, it meant that all the other resolutions would not be implemented. Nicholas repeatedly warned that if the deal was shot down, MI-REIT faced a real danger of being liquidated and closed down. Depending on the liquidation values of the properties, investors could even get back nothing.

The presentation was followed by a Q&A session which had many investors taking the microphone to question the management on the proposed resolution. Some of the questions were pretty heated and the Chairman of the meeting, Lim How Teck, had to use his many years of experience to diffuse the situation.

Even though there were a number of questions, the theme was similar.

1) Why was there a placement of MI-REIT units at such a huge discount to the cornerstone investors?
2) Where was the acquisition of properties from AMP necessary?
3) Why was the deal presented at such a last minute and “forced down” investors throat? Were there no alternatives?

And the answer, in a nutshell, was that the present team only took over the REIT this year and they couldn’t find any other better deal on the market to solve the issue.

George Wang, chairman and CEO of AIMS Financial Group, said that when he took over MacarthurCook in August 09, he was told that all the underlying funds were healthy and he only realised the extent of the debt problems after he came in.

Some other investors were hopeful of an alternative plan from CITM. In the end, it never came as all Chris Calvert could mention when he took to the microphone was to restate the facts of his case, and ask the managers of MI-REIT for more answers. His earlier plan had been contingent on CITM being made joint managers of MI-REIT. This was obviously not possible after the public clarification from MAS.

One investor even asked about the cost of the full colour newspaper advertisements that MI-REIT had been taking out over the past week. How much was it and did it come at the expense of unitholders? There was no answer from the board to this question.

At the end of the day,the critical resolutions were passed by a very close margin of 52-48%. The managers of MI-REIT were relieved and can now get on with the task of rebuilding the REIT.

For the full background, you can refer to this article in The Edge:

Can This Man Save MI-REIT?

As part of a new MAS requirement, all Singapore listed REITs will be required to hold Annual General Meetings (AGMs) once every calendar year and not more than 15 months from the last preceding AGM, with effect from 1 January 2010.

This means all REITs will have held an AGM by 31 Dec 2010. In line with SGX’s rule on the timing of AGMs for other listed issuers, REITs will have to hold their AGMs within 4 months from their financial year end.

During the AGM, REIT managers will have to present the REIT’s audited profit and loss accounts (accompanies by an auditor’s report) to the unitholders. Other items on the agenda would be at the REIT manager’s discretion.

In the past, there were no requirement for the REITS to have AGMs. Some of them might have information sessions  while others might not. For example, Saizen REITs held an information session a few days ago where they even flew in some of their asset managers from Japan to give a briefing.

Having a mandatory AGM is good for corporate governance as it provides an additional avenue for retail investors to have access to the REITs management.

CapitalCommercial Trust (CCT) recently announced a Rights Issue, becoming the third company related to Capitaland to do so.

This CCT Rights Issue will raise approximately S$828.3 million, with 1 Rights Unit being offered for every existing CCT Unit owned. The Rights Issue will allow Unitholders to subscribe for the new units at $0.59/unit. This is a discount of 60.9% to CCT’s pro forma NAV per Unit of S$1.51 after taking into account the effects of the Rights Issue and the latest valuation as at 22 May 2009.

Key dates are as follows:

First day of ex-rights trading : 3 June 2009

Despatch of offer document : 10 June 2009

Commencement of nil-paid Rights trading : 10 June 2009

Last date for trading of nil-paid Rights : 18 June 2009 at 5pm

Last date for acceptance and payment of Rights and Excess Rights Units : 24 June 2009 at 5pm (930pm for electronic)

Expected date of trading of Rights Units : 3 July 2009

Saizen Reits had previously announced a Rights Issue to help in the repayment of their CMBS loans. The proposed fundraising will help Saizen pay off their loans up to 2010 and give them a stronger position to negotiate their other loans that are maturing in 2011.

Sharesholders of Saizen will be given the rights to subscribe for 11 Rights Shares at a price of S$0.09 for every 10 shares of Saizen that they hold.

This works out to be 497,185,362 Rights Shares that will be available. If fully taken up, it will raise $41.1 million for Saizen.

One difference of this Rights Issue from most other ones is that shareholders will be given 1 free warrrant (with a 3-year expiry) for every Rights Shares that they subscribe for. The exercise price of this warrant is also S$0.09. If fully exercised, this will raise another $44.75 million.

This free 3-year “call option” provides an added incentive for shareholders to take up the rights issue. 

Based on the 2008 financial statements, the DPU per unit will drop from 4.9 cents to 2.48 cents (adjusted for rights) and 1.72 cents (adjusted for rights and full exercise of warrants).

The NAV per unit will drop from $1.04 to $0.54 and $0.38 respectively.

Options available to unit holders include:

1. Sell off Saizen shares before ex-rights date.
2. Subscribe to rights.
3. Subscribe to rights and excess rights.
4. Sell off rights.
5. Subscribe to some rights and sell off the rest.
6. Subscribe to some rights and sell off some shares.
7. Do nothing. (worst option)

As this Rights Issue comes with free warrants, option 4 and 5 might not be optimal options.

For example , let’s look at someone has 10000 shares. He will be given 11000 rights. If Saizen trade at $0.12 after ex-rights date, the Rights should trade around $0.03 (0.12-0.09).

Say the investor does not wish to put in any more money to take up his Rights. Instead of selling off all the rights, a unit holder should sell off all his mother share and subscribe to the same number of Rights Shares. He still ends up with the same number of units.

If he sells off 11000 Rights, he will get back $330.

If he sells off 10000 shares and 1000 Rights, he will get back $1230. Using $900 to subscribe for 10000 Rights Shares, he will be left with $330.

In both cases, there is no difference in the amount of money he gets back and number of shares left. However, using the second method, he will be given 10000 warrants with an exercise price of $0.09. This gives him a “free” option to participate in future upside of the share price.

Note the Rights might trade at a slight premium due to the free warrants effect.

For example, 3.5 to 4 cents in the example I gave. Then an investor who wish to sell off all his rights would have to consider whether the premium is worth paying (disposal of rights using the second method) to get the warrants.

Key dates are as follows:

Units trade ex-rights – 4 May 2009

Commencement of trading of nil-paid rights – 11 May 2009

Last day of trading of nil-paid rights – 19 May 2009

Last day for subscription and payment of Rights Shares – 25 May 2009 at 5pm

Expected date of trading of Rights Shares – 4 June 2009

Expected date of trading of Warrants – 5 June 2009

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The consolidation of REITs in Singapore have started with the sale of Allco Commercial REIT and the manager, Allco (Singapore) Limited to Fraser and Neave.

Frasers Centrepoint Limited, a wholly-owned subsidiary of F&N, will buy over 17.7% of Allco Commercial REIT and 100.0% of Allco (Singapore) Limited from Allco Finance Group.

Based on the offered price, Allco REIT is valued at $0.83, which is a discount of 42.3% to the unaudited NAV of $1.44 as at 31 March 2008, and a premium of 16.9% to the closing price of $0.71 on 7 July 2008.

With the purchase, Frasers Centrepoint Limited will terminate the planned listing of their commercial REIT and will instead use Allco REIT as a vehicle for its further commerical property activities.

Upon completion of the purchase, Allco REIT will be renamed Frasers Commercial Trust.

The sale of Allco REIT at such a huge discount to its NAV is probably due to the need of their parent, Allco Finance Group, to raise funds. This sale takes place before the proposed strategic portfolio focus of Allco REIT mentioned a few months ago can be completed.