Unusual buyout creates new syndicate

By Bob Dey

Melbourne syndicate manager MCS Property is close to completing an unusual transaction, taking over a listed property trust and syndicating its portfolio with the same number of units issued to new investors.

About $5 million of the $A210 million syndicate will be sold in New Zealand through Money Managers.

The deal highlights the struggle smaller listed trusts will have to stay competitive in Australia, plus some of the advantages for an investor in buying the vehicle rather than the properties.

MCS director Peter McGrath, in Auckland this week, says Queensland property developer and investor Forrester Kurts made a late bid to grab the target TripleCee trust and was still telling its shareholders last week it intended to pick the trust up once MCS failed.

But McGrath says the only matter still to be resolved is completion of the cash-out of existing TripleCee unitholders, for which finance is arranged.

"We've spent over $1 million of our own money getting it to this stage. That's a lot of hurt money," he says.

More importantly for investors is the pioneering of a trust takeover. "People said you don't buy into listed property trusts. The reality is, we can buy for less than net asset value, which was 92c. Our offer was 90c, less their latest dividend of 2.05c."

TripleCee has 10 convenience shopping centres in its portfolio, five in Queensland, four in New South Wales and one in Canberra. MCS already had 21 of these smaller centres syndicated and took over management of TripleCee last month.

The trust is due to be delisted on December 10, on completion of the cash-out process in which existing unitholders get cash, with the opportunity to re-invest in the new syndicate.

McGrath says that by buying the trust, MCS has saved itself about $11 million of stamp duty which would have had to be paid if the portfolio was bought on the open market.

He says TripleCee had trouble with one shopping centre which had strong competition from a neighbour, but its larger problem was the creation by the Australian Stock Exchange last year of a listed property trust index, for which an asset level of $A1 billion was required.

That meant the smaller trust was starved of funds as fund managers turned to the larger vehicles on the index.

By comparison, MCS had $A550 million under management and is adding $A210 million, still under the listed index size but a sufficiently strong manager to attract institutions wanting some direct property investment.

"We've got one institution looking for $A40 million of units. The biggest institution we had before was $A10 million."

McGrath says the portfolio was not badly managed, though it needs more maintenance. MCS is forecasting returns rising from 9.2 per cent in the first six months to 12 per cent in the ninth year.