Case study of failed reit

[Greenrookie]

Hi Buddies,

I tried google about macauthercook industrial reits and all the info i can find are regarding the rights issues, the recap plan, etc.

I am actually trying to look for info earlier, why/how did it get into trouble? Or is it the Parent company that got into trouble, and cause the trouble to rollover to the reit?

Appreciate any links, any info any buddies might have? If it is the parent company that is in trouble, and hence the manager, why is there a need for such value destructing exercises?

Since the trustee hold the assets of the reits, and as far as I know, trustee and the sponsor/ parent company are separate identities, the how can the troubles of parents (to the extend of the stake of ownership) lead to almost insolency??

Any info on failed reit also appreciated. Trying to use these as case studies to further my knowledge and risk assessments of reits.

[freedom]

macarhur cook industrial reit is a casualty of the great financial crisis. the reit was loaded with debt and unable to refinance when the debt was due.

if it happened in current environment, it should work out fine for it.

[Greenrookie]

macarhur cook industrial reit is a casualty of the great financial crisis. the reit was loaded with debt and unable to refinance when the debt was due.

if it happened in current environment, it should work out fine for it.

Thank you freedom, hmm...

then the second qn, given the max a reit can gear is 60%, a 1 for 1 rights issue (even if price is traded at 60% of NAV, but shouldn't be so bad right) while dilutive should have solve the problem isn't it? 50% dilution... but what i read is dilution of more than 80%...

Hmm.... existing shareholders no money??? Thats why AIM finance has a chance to raid???

Or is my line of thinking not making sense at all

[KopiKat]

There're lots of useful REITs thread in VB forum. Go do a search with 'REIT' in title. One of which may be relevant to your study is,

http://www.valuebuddies.com/thread-277-p...ml#pid2529

There's a pdf download which you can click on or below (not sure if it'll work)

http://www.valuebuddies.com/attachment.php?aid=18

The Pulse article by Bobby Jayaram touched on the reasons for some of the REITs failures during the '08 crisis.

[freedom]

Thank you freedom, hmm...

then the second qn, given the max a reit can gear is 60%, a 1 for 1 rights issue (even if price is traded at 60% of NAV, but shouldn't be so bad right) while dilutive should have solve the problem isn't it? 50% dilution... but what i read is dilution of more than 80%...

Hmm.... existing shareholders no money??? Thats why AIM finance has a chance to raid???

Or is my line of thinking not making sense at all

The problem is that when you have the largest financial institutions in the world collapsing, would you trust the viability of such a small REIT?

At the height of the financial crisis, no one was willing to subscribe to the right issue no matter how much discount it is. No one was willing to throw good money after bad money.

On hindsight, investors can say that they would, but at that time, no one was willing to step in. Otherwise, AIMS/AMP would offer a much better price to the rest of minority unitholders.

I still remember that Suntec Reit was trading at 50 cents because it would require a huge right issue to be a going concern if the crisis lasted any longer.

[opmi]

Another failed one - Saizen. For the pre-rights issue investors.

Lessons learnt - evenly spread debt profile. Got those with rich sponsors.

[Greenrookie]

Thank you freedom, hmm...

then the second qn, given the max a reit can gear is 60%, a 1 for 1 rights issue (even if price is traded at 60% of NAV, but shouldn't be so bad right) while dilutive should have solve the problem isn't it? 50% dilution... but what i read is dilution of more than 80%...

Hmm.... existing shareholders no money??? Thats why AIM finance has a chance to raid???

Or is my line of thinking not making sense at all

The problem is that when you have the largest financial institutions in the world collapsing, would you trust the viability of such a small REIT?

At the height of the financial crisis, no one was willing to subscribe to the right issue no matter how much discount it is. No one was willing to throw good money after bad money.

On hindsight, investors can say that they would, but at that time, no one was willing to step in. Otherwise, AIMS/AMP would offer a much better price to the rest of minority unitholders.

I still remember that Suntec Reit was trading at 50 cents because it would require a huge right issue to be a going concern if the crisis lasted any longer.

Ahuh!! Thank you for your comments. So a strong sponsor with a big stake in the REIT does matter. They can lead the shareholders by subscription to all rights and declare interest to subscript to excess, then the small investors will most prob follow too. Also, with this big sponsor with big stake, banks might think, I dun loan, they will survive nonetheless, so what's the issue? So the rights issue might not even need to happen

[AlphaQuant]

Ahuh!! Thank you for your comments. So a strong sponsor with a big stake in the REIT does matter. They can lead the shareholders by subscription to all rights and declare interest to subscript to excess, then the small investors will most prob follow too. Also, with this big sponsor with big stake, banks might think, I dun loan, they will survive nonetheless, so what's the issue? So the rights issue might not even need to happen

well it's not just REITs - look at Olam and what happened once Temasek stepped in. If you want to leverage yourself to the neck, then make sure u have a fairy godmother to run to when dirt hits the fan...

[brattzz]

well it's not just REITs - look at Olam and what happened once Temasek stepped in. If you want to leverage yourself to the neck, then make sure u have a fairy godmother to run to when dirt hits the fan...

This is true, if finanical strength of a strong backer exist, then by all means leverage, leverage leverage!! FLEX the $ muscles!!

[shanrui_91]

At the end of the day, there is just so much that a strong sponsor can do. It is risky to assume that a strong sponsor is equivalent to the REIT/company being safe. If a REIT has taken on too much leverage using aggressive property valuation, rights issue is still unavoidable. If you have chosen to go for that extra 50 bp of yield that comes about with riskier debt profile, then you should be prepared for what might happen. There is no free lunch in the world, though there might exist occasion where there is some mispricing.

Olam, CMT, DBS did not escape rights issuance when crisis hits.

You can have similar sponsor but very different level of management.
For e.g. compare the debt profile of CMT and CRCT as well as MLT and MIT. (the difference was much more drastic at end 2012 than at the moment)
Even First REIT and LMIR have achieved very different kind of returns despite sharing the same parentage to the Lippo Family.

2013
http://capitamall.listedcompany.com/news...29BA.1.pdf slide 23
http://crct.listedcompany.com/newsroom/2...9B99.1.pdf slide 25
http://www.mapletreeindustrialtrust.com/...eeting.pdf slide 32
http://www.mapletreelogisticstrust.com/d..._Final.pdf slide 14

2012
http://capitamall.listedcompany.com/news...DC82.1.pdf slide 15
http://crct.listedcompany.com/newsroom/2...83FE.1.pdf slide 22
http://www.mapletreeindustrialtrust.com/...eeting.pdf slide 24
http://www.mapletreelogisticstrust.com/d...-Final.pdf slide 16

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Hi Buddies,

I tried google about macauthercook industrial reits and all the info i can find are regarding the rights issues, the recap plan, etc.

I am actually trying to look for info earlier, why/how did it get into trouble? Or is it the Parent company that got into trouble, and cause the trouble to rollover to the reit?

Appreciate any links, any info any buddies might have? If it is the parent company that is in trouble, and hence the manager, why is there a need for such value destructing exercises?

Since the trustee hold the assets of the reits, and as far as I know, trustee and the sponsor/ parent company are separate identities, the how can the troubles of parents (to the extend of the stake of ownership) lead to almost insolency??

Any info on failed reit also appreciated. Trying to use these as case studies to further my knowledge and risk assessments of reits.

Moody's downgrades MI-REIT to Caa1; outlook negative
1219 words
3 June 2009
Moody's Investors Service Press Release
MOODPR
English
© 2009

Moody's Investors Service has downgraded MI-REIT's corporate family rating to Caa1 from B2. The outlook is negative.
This concludes the rating review extended on April 1, 2009.
"The downgrade reflects heightened financing pressure facing MI-REIT as a result of its funding requirement to complete its S$91 million acquisition of 4A International Business Park ("IBP") by 4Q09," says Kathleen Lee, a Moody's VP/Senior Analyst.

"The timing for securing this funding remains uncertain while the value of this asset has fallen by SGD20 million or 22%," adds Lee.
While Moody's notes that MI-REIT's S$201 million bank loan due 16 June, 2009, has been granted a 6-month extension to 31 December 2009, the loan extension also includes an event of default should MI-REIT fail to settle the 4A IBP acquisition in 4Q09. This bank loan represents 91% of MI-REIT's total debt obligations.

MI-REIT faces strained financial flexibility as all its assets are encumbered, its banking relationships are limited, while it also lacks a strong sponsor. As a result, there is substantial near-term uncertainty as to whether it will be able to secure new funding to settle the asset acquisition.

The negative outlook reflects the high level of uncertainty over the trust's ability to fully address its financing/refinancing requirements by 4Q09.

The rating could be further downgraded if MI-REIT fails to make material progress in securing definitive financing for its asset acquisition and debt maturities over the next 3-6 months.

On the other hand, the rating may experience upward pressure if MI-REIT is able to substantially address its funding needs or recapitalize its balance sheet.

The last rating action was on 1 April, 2009, when MI-REIT's rating was downgraded to B2 and Moody's continued its review for further possible downgrade.

Headquartered in Singapore, MI-REIT is a real estate investment trust ("REIT") that owns and invests in a portfolio of industrial properties. The REIT reported investment property assets of approximately S$530 million as at 31 March 2009.