THE TRUTH WHO SPEAKS IT? .... IT ISN'T THE BOARDS OF DIRECTORS OF THE REIT's (incl GMG).
REITs fudging full disclosure
Michael Pascoe February 10, 2009 With Stockland's results looming tomorrow, the property trust industry is locked in a game of let's-not-quite-inform-the-market. Yes folks, the REIT cat is still on the roof and won't come down.
Two weeks ago Westfield and Macquarie Countrywide blatantly fudged full disclosure, hence the allusion to the proverbial kitty on the roof.
Last week Westfield continued to play the game, effectively telling the market only that puss was still up there while hitting institutional shareholders for a massive $2.9 billion capital raising.
The REIT industry is locked in a desperate game of recapitalise and/or be screwed by ruthless and/or equally desperate banks. In the circumstances, it seems the last thing the well-paid managers want to do is tell investors what's really going on.
The result is a two-level market: On the one hand, there are the institutional investors, with their own property analysts and often their own considerable property exposure, who have a reasonable idea of the real situation. And then there are the retail investors who are being treated like mushrooms, fed half-truths and left in the dark while what they once regarded as conservative, dividend-producing investments are repeatedly smashed.
And in some cases, the asymmetry of information is considerably worse to the extent of raising questions about an insider trading advantage for major Australian institutions that are sounded out about equity raisings before they are announced to the market or abandoned.
Today's contribution to the feline denial game comes from ING Industrial Fund (IIF) - although it is conceding its cat on the roof is getting thinner and might not have much water.
IIF is already damaged goods in my book for its misleading answer to an ASX query last year about facing a breach of its loan covenants.
IIF gave the impression it was all fine when it was actually scrambling for its rapidly-depreciating life.
This morning IIF made a small four-item announcement, theoretically updating its asset divestment program.
First item was that it had reached the unconditional contracts stage in offloading 22 Canadian retail properties at 20% below their June 30 annual report book value - and they had been freshly revalued for June 30.
Still, IIF's share of those properties only amounted to $82 million, which is hardly significant when the fund claims to have $4.8 billion in assets.
The second item mattered less in dollar terms - the $14.3 billion sale of its Lidcombe Distribution Centre. What IIF didn't bother mentioning is that the sale was 22% below book value - and that book value came from an external valuation just seven months ago.
If it's happy to announce the sale of a property for a 22% loss, you might wonder about the value of the rest of the portfolio.
The third item was that sale negotiations were continuing on 35% of IIF's European portfolio - but in the present climate "negotiations continuing" doesn't really mean much and the amount involved is likely to be only around $150 million.
Which leaves the final item, the one that might mean considerably more: IIF has moved a step closer to buying an increase from 55% to 60% in its loan covenant gearing ratio for its $1.785 billion in syndicated loans.
That is good news. But it's only until the end of this year, when the total leverage ratio drops back to 57.5% and then only until June 30 2010.
And then remember the evidence above of diving valuations and that IIF was running at that 55% level late last year. The extra five per cent seems very thin indeed.
And what's left unmentioned is any hint of the enormous fee the banks are likely to be demanding for that little extra leeway - something into 10 figures is possible. It's starting to look like some banks are playing almost unconscionable games of their own.
I was hoping to ask IIF CEO Paul Toussaint about the scale of fees - his name and number is at the bottom of the announcement for further information, but it seems he wasn't able to return my call this morning.
I also would have liked to have asked him about a rumour that IIF had sussed out the market about an equity raising and had been knocked back.
I would like to know just how such a sussing might have been done, and whether IIF's main institutional shareholders had been asked about their willingness to subscribe capital.
If they had, those shareholders would have had insider knowledge about the company's plans and, more importantly, would have had market sensitive knowledge if they realised the approach had been knocked back.
Not that IIF has much in the way of major shareholders anymore. There's the ING Group itself with 18.4%, but that helps protect the $42.3 million in various fees it received from IIF last year, and the Goodman Group with 9.4% - but it's an industrial property trust with plenty of problems of its own.
For that matter, ING is not without troubles either when its Dutch bank parent depends on the beneficence of the Netherlands government for its survival.
There appear to be no other substantial shareholders (a holding of 5% or more) on the register. The Commonwealth Bank ceased to be a substantial shareholder yesterday, AMP ceased on January 15 and Macquarie on January 13.
Disclosure: The Pascoe family super fund unfortunately is a long-term IIF investor
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