Wednesday, November 18, 2009

MacarthurCook Industrial REIT and Cambridge Industrial Trust Update

MacarthurCook Industrial REIT (MIREIT) recapitalization exercise took a twist with Cambridge Industrial Trust (CIT) taking a 9.76% stake in MIREIT.

􀂃 6 Nov 2009 – MIREIT announced a series of recapitalization measure
􀂃 10 Nov 2009 – MIREIT announced CIT has become a substantial shareholder with a 9.76% stake
􀂃 16 Nov 2009 – CIT announced it will be voting against the resolutions during MIREIT EGM to be held on 23 Nov 2009 and is proposing to replace the current MIREIT manager, then appoint CITM, the trust manager of CIT as the manager.

CIT rationale to vote against the resolutions stems from the inherent value it deems in MIREIT units and states that the proposed recapitalize exercise is “massively value destructive” to the NAV of $0.94 per unit. CIT has internally valued MIREIT at $0.479 per unit.

Possible Outcomes

Scenario 1: Unitholders vote in favour of resolutions during EGM MIREIT will proceed with the recapitalization exercise. The management of CIT mentions that they have the resources to subscribe for their pro-rata share of rights units. The total stake of 26 million units cost CIT $10.3 million which was funded from the private placement which raised $28 million. The subscription of the rights units will require a further $8.26 million.

Scenario 2: Unitholders vote against resolutions during EGM CIT will proceed to convene another EGM to replace the current REIT manager and appoint itself as the manager. In the event that this is the outcome, it leaves CIT with very little time to put together a refinancing package to address MIREIT pending debt maturity as well as funding needs. MIREIT debt comes due in Dec 2009. CIT has revealed little details about its plan, citing regulatory restrictions. We believe that CIT already has a refinance package on hand for it to suggest voting down the resolutions. Even if it does not, its deemed value of $0.479 per unit of MIREIT gives an indication of the residual value that unitholders can expect to receive in the event that CIT winds down the REIT.


On the overall, the surprise turn of events provided an alternative course of action for MIREIT unitholders. In a way, the move by CIT opens up the possibility that MIREIT unitholders will not be subjected to the heavy dilution. Either way the EGM turns out, the risk is more on the part of CIT unitholders rather than MIREIT unitholders. CIT management has not revealed much details of its plan and therefore MIREIT unitholders can only hope that they are in good hands should they vote against the resolutions. CIT unitholders on the other hand faces the same degree of dilution risk as existing MIREIT unitholders.

We currently have a Hold rating for CIT and a Sell rating for MIREIT.

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