George Wang plans to build new funds business in Singapore, refocuses MI-REIT

George Wang, chairman and founder of Australia's AIMS Financial Group, is discussing the tumultuous events of the previous day with his vice-chairman Greg Bundy. They are interrupted by Nick McGrath, CEO of MacarthurCook Investment Management, who is looking for a signatory to finalise the placement of 221 million new shares in MacarthurCook Industrial REIT (MI-REIT) to a group of cornerstone investors. Bundy quickly signs the document. "This is not our rescue plan," he says. "This is our future plan."

Less than 24 hours before, Wang, Bundy and McGrath had faced dozens of angry investors in the financially troubled MI-REIT, who were trying to shoot down their plan to recapitalise it by, among other things, selling shares to new investors at a steep discount. While MI-REIT desperately needed fresh equity because of a commitment to buy an industrial property asset for $90 million and refinance some $226 million of debt before the year-end, the investors were upset about the dilution they would suffer as a result of the entry of the new slate of investors.

In the end, the five inter-related resolutions were voted through, paving the way for the entry of the cornerstone investors, a large rights issue and the acquisition of several properties. All in, MI-REIT will see its asset base expand from $490 million to $653 million, while its debt-to-asset gearing will shrink to 44% from 29%. The vote could have gone either way, though. Even after aggressive canvassing, two of the resolutions, on which Wang had to abstain, squeezed through on a narrow margin of 52 % for and 48 % against. "We've been here for just a short period," he says, when asked for a comment on the outcome. "We faced a lot of problems, solved some, and learnt a lot."

The ferocity of the opposition that Wang encountered in Singapore hasn't dampened his enthusiasm for doing business here. In fact, just hours before the China-born entrepreneur was due to board a flight back to Australia, where he has lived for the last 21 years, he outlined a plan for AIMS Financial Group to build up an asset management business here separate from MI-REIT. "In 2006, we were looking at a fund management business in Hong Kong with China funds. But, I see Singapore has potential and I've changed my mind. I want to locate it here." AIMS Financial Group now plans to set up a property fund to invest in all classes of property - retail, commercial, hospitality, healthcare - except industrial, which it will leave to MI-REIT.

According to Bundy, AIMS Financial Group is already in talks with a Boston-based fund to raise money for the funds it plans to set up. "They want to back George," he says. "It's one of the biggest property funds in the world."

Started in 1991 by Wang, AIMS Financial Group is in the business of mortgage lending and securitisation, as well as real estate investment, fund management and investment banking. It also owns a stock exchange in Australia.

Fresh start for MI-REIT

Even as Wang prepares to expand his business interests in Singapore, .the impact of his takeover of the MacarthurCook group and its Singapore-listed MI-REIT is still unfolding. After the placement to the cornerstone investors and rights issue, Australia's AMP Capital will emerge as the largest investor in MI-REIT, with a 16% stake. Wang will be the second largest with 10%. Meanwhile, the manager of MI-REIT will effectively be a unit of AIMS Financial Group. "I will be deputy chairman of the manager, George is chairman, Nick is CEO," Bundy says. "We will have another two directors from AMP Capital."

With a fresh line-up of backers, Bundy says MI-REIT should now face little problem in growing its property portfolio once more. "We have the biggest property players in this hemisphere," he says. Besides AMP Capital, MI-REIT's cornerstone investors include Cohen & Steers, Henderson Global Investors, Algemene Pensioen Group of the Netherlands and Indus Capital Partners. And, while MI-REIT's debt-to-asset gearing isn't particularly low, Wang is pledging his own support as well as that of the cornerstone investors in providing the REIT with future funding. "If necessary, the cornerstone investors would consider putting in additional capital to make MI-REIT more stable," he says.

Wang also intends to steer MI-REIT towards China, where his AIMS Financial Group has been building up its property interests. According to him, AIMS Financial Group has a joint venture with the Guangdong government that is developing industrial properties on some 20 sq km of land. "There are already many factories, including many big companies," Wang says, on the progress of the project. AIMS Financial Group also has an agreement to develop industrial land for the Tianjin government. Those projects could provide a pipeline of assets for MI-REIT to acquire in the future. Wang claims to have other property interests in China, including the development of residential and commercial property in Guangdong, as well as a resort in Hainan.

For now, investors in MI-REIT have little choice but to ride along with Wang. While many are unhappy about the cornerstone investors acquiring shares on the cheap, they would suffer even more dilution if they failed to take up their entitlement to the rights issue, which has been priced at 15.9 cents. Among the dissidents is Mohamad Salleh Marican, executive chairman of Second Chance Properties, who accumulated several million shares in MI-REIT early this year at an average price of 24 cents, attracted by the high dividend yield at the time, as well as its steep discount to its net asset value (NAV). As at end-September, MI-REIT had an NAV of 94 cents per share. "Yes, I will subscribe to the rights issue," he tells The Edge Singapore, via email. "I expected them to make a rights issue, but was disappointed with the package deal that took place."

Broader impact

However, it is still unclear if Cambridge Industrial Trust (CIT) will take up its rights issue entitlement. Its manager, Cambridge Industrial Trust Management (CITM), had mooted the idea of a merger between CIT and MI-REIT more than once this year. Other vulture investors were circling overhead, too, as MI-REIT's financial troubles mounted, which Bundy says included "a Middle East company and one Australian player". On Nov 6, CIT swooped in and acquired a 9.78% stake in MI-REIT for $10.3 million and began a campaign to oppose AIMS Financial Group's plan to recapitalise the REIT. It also wanted CITM to take over its management.

Its aggressive tactics made analysts, investors and regulators sit up. "For the first time, control was also contested at the REIT level with the intervention of CIT," notes Meenal Kumar, an analyst at OCBC Investment Research in a recent report. While some observers saw it as a possible fate for other troubled REITs, others asked if it was appropriate for CIT to use its funds to drive another REIT into the arms of CITM. There was also the question of whether CITM would be faced with a conflict of interest managing two industrial REITs.

The Monetary Authority of Singapore eventually weighed in on the issue, informing CITM that it would not approve its appointment as manager of MI-REIT, in view of the potential conflicts it would face. The question of whether CIT's pursuit of MI-REIT on behalf of CITM was appropriate is still up in the air, though. The only thing that is clear is that it has CIT facing two equally uncomfortable options now. The first is to decline to take up its rights issue entitlement in MI-REIT and suffer a steep dilution. The second is to pour more money into MI-REIT under its rights issue, which MI-REIT will then use to compete with it.

Another question yet to be answered is whether there ought to be regulatory safeguards to prevent investors in other financialIy troubled REITs from being short changed by dilutive placements to cornerstone investors in the manner that has occurred at MI-REIT. Clearly, that would need to be balanced against ensuring that managers of troubled REITs aren't left too constrained in their hunt for cash. For now, analysts simply advise caution.

"Existing investors in REITs with high leverage and weak sponsors need to be wary of the likelihood of potential dilution, as more cash calls are likely - we see a better investment opportunity post-capital market activity and post-dilution," says Kumar, in the report.

Is MI-REIT attractive?

For their part, officials at AIMS Financial Group are eager to cast the dilutive equity-raising exercise at MI-REIT as part of a legacy problem that is now behind it. According to a circular to investors in MI-REIT, the REIT's pro-forma distribution is 2.39 cents per unit, while the pro-forma NAV is 31 cents. At MI-REIT's theoretical ex-rights price of 22.3 cents, the forward yield is 9.8%. Looking ahead, the manager of MI-REIT is committed to paying out 1.09 cents in 1H2010 (the trust has a September year end) to investors. "I will guard the DPU [distribution per unit] with my life," McGrath told hostile investors during the shareholders' meeting last week.

Meanwhile, as Wang prepares for a higher personal profile in Singapore as he expands his business interests here, he is rediscovering his personal links to the country. "My grandfather lived here 70 years ago, and my mother was born in Malaysia," says Wang, who was born in Hainan and is now a naturalised Australian. "I've been eating chicken rice every day at the Mandarin Hotel." But the best way for Wang to get local investors to warm up to him may be to focus on turning MI-REIT around.

    George Wang plans to build new funds business in Singapore, refocuses MI-REIT