TIX update

The TIX market update (on 1 Dec) is a role model of corporate transparency for major events such as takeovers. The report offers an abundance of info. Here are my key observations:

NTA — TIX reported NTA of $2.23 for the combined entity (TIX update, pg. 22), which is identical to KPMG’s estimate (see KPMG ANI report, pg 23). Market conditions suggest that further yield compression may have occurred, which would increase TIX NTA to $2.36 (25bp compression) or possibly $2.50 (50bp compression).

Value-added merger -- The net property yield after transaction costs is higher than current yield from on-market properties (pg.20 slide). In other words, the scrip bid for ANI was more cost effective than growing TIX portfolio through on-market buying.

Cusp of S&P/ASX200 index -- clearly a goal of TIX to be added to the index, which might re-rate shares closer to other indexed AREITs and thereby better reflect TIX underlying valuation. Interesting that instos already own 60% of TIX shares. 360Capital (TGP) holds another 18% or more of TIX, which will likely be sold down gently to around 10-12%.

FIFE gone — TIX was able to end Fife’s role without costing unitholders for the termination (Fife will continue its development role on one project). Pointedly, pg.7 slide states that TIX will focus on EPU and DPU growth, not FUM growth (ANI criticized TIX for not doing in-house property mgt, whereas TIX indicated benefits of outsourcing property mgt).

Lease Expiries — TIX leasing activity suggests that TIX was well prepared and ready to move on the lease negotiation blitz long before the takeover went through. pg.8 slide refers to current discussions with ANI properties. Lease negotiations are occurring over more than 40% of ANI property (by property area)! Pg.10 slide shows that 65% (by income value) of major near-term (to Fy17) lease expiries are ANI properties. This may suggest that TIX was correct about ANI shareholders having leasing risk.

Portfolio changes -- TIX has identified properties that may be sold, but also reconsidering on one or two ANI properties where reasonable leasing deals are emerging. Sale of TIX properties is also contemplated where ANI properties that were earlier planned for sale are retained due to leasing deals (pg.21 slide).

Gearing -- Currently 44.1%, which TIX wants to reduce to at least below 40% and eventually towards 35%. An existing sale and potential revaluations may reduce gearing to 40.8%, and $50M in targeted asset sales will reduce gearing to about 37% (see pg.23 slide). Good news is that debt facilities have been negotiated out four years.

IDR — "TIX is not focused on any other portfolio acquisitions"(bottom of pg. 7 slide), suggesting that neither TIX nor its parent will take over IDR (for now)

Flatter distribution growth — TIX has FY16 guidance of 21.6cpu, slightly above current payout (21.5cpu). FY17 distribution guidance is same as FY16 distribution (21.6cpu). No surprises here. Distributions have increased more than 15% over the past two years (from 18.6cpu in FY14 to 21.5cpu in FY16). This was partly due to higher property valuations and accretive acquisitions, but recent increases were likely also to woo ANI shareholders. TIX is also being conservative in its FY17 distribution guidance due to lease renewal uncertainties, potential sale of some properties, and lower gearing effects. (On 29Sept, Morgans estimated FY17 distribution of 22cpu, which may be too optimistic).

These are just my take-away interpretations. Please DYOR.