ING Industrial Offer Re-Rates A-REITs

This story features GOODMAN GROUP, and other companies. For more info SHARE ANALYSIS: GMG

By Greg Peel

A “nothing's in writing till we get a look at your books” all-cash offer has been made for Australian real estate trust ING Industrial Fund ((IIF)) from a consortium of three major global pension funds and local REIT Goodman Group ((GMG)). The trio are believed to be CIC, APG and the familiar Canadian Pension Plan Investment Board.

At 57c, the conditional offer represents an 18.6% premium to the one-month volume weighted average price of IIF share trading. Despite the premium, the price also equates to the assumed net tangible asset value of IIF's portfolio, so it's not really much of a premium on that basis. Hence while JP Morgan expects the IIF board will approve the offer, Deutsche Bank suggests unitholders may not necessarily be as forthcoming.

From the Goodman point of view, brokers note the intention is for GMG to increase its stake to 20% and take the fund private. GMG already owns 7.1% of IIF but has plenty of cash laying about to fund the balance, and brokers suggest the deal would be slightly accretive for Goodman unitholders.

No mention of management rights. Will Goodman score those as well in the deal?

From the IIF unitholders' point of view, because GMG already owns 7.1% brokers find it difficult to see another suitor emerging given the obvious blocking opportunity. IIF has already been reviewing its global real estate management platform and analysts have been assuming this was ahead of a proposed sale of the platform. Which is the better option? Wait to see how the platform sale goes and hold out for an eventual return to value in the share price on the assumption of an eventual return of confidence in industrial real estate, or take the money and run?

Of the six brokers covering the stock in the FNArena database only three have commented this morning, meaning the others will probably comment on Monday. Macquarie must be advising as it is now restricted on making a recommendation, while Deutsche Bank (Hold) has only published a preliminary note. JP Morgan, on the other hand, is backing the deal to be done and has thus downgraded from Overweight to Hold at an upgraded target price of 56c.

JP Morgan nevertheless suggests the offer is good news for other A-REITs which have seen their share prices wallow well below the market value of their property portfolios for some time. Wholesale funds are clearly more bold and are prepared to put equity into property at net tangible asset value.

On that basis, JPM suggests investors now look to re-rating opportunities for funds such as ING Office ((IOF)) and Dexus ((DXS)).

Deutsche Bank adds that the fact a major trio of global funds is happy to hook up with Goodman Group is a clear endorsement of GMG's platform.

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