In 1998, Macquarie Bank managed a stable of sector-specific property trusts in the office, retail, industrial and leisure sectors, all established in the period between 1993-1998. It also managed a stand-alone listed office fund called Celsius House Trust that was a hangover from the previous property cycle and whose sole asset was an office building in Lonsdale Street, Melbourne.

 

The building had recently become fully let after a concentrated leasing campaign and was returning a sound income yield to its investors, however traded at a significant discount to its net asset backing by virtue of the fact that the trust suffered from a lack of liquidity and diversification of investment.

 

In order to address these issues and release value for investors, we implemented a merger between Celsius House Trust with its Macquarie stablemate Property Income Investment Trust pursuant to which unitholders in Celsius House Trust received units in the larger vehicle to replace their existing unitholding.

 

Not only did this realize a significant capital gain for Celsius House Trust unitholders upon implementation of the merger, by becoming investors in the larger fund, it also provided them with additional liquidity on their investment and an increased distribution yield to what they had been receiving previously.

 

: : EXAMPLE 1

Merger of Celsius House Trust with Property Income Investment Trust

 

During 2005-6, Macquarie had a number of stand-alone property syndicates whose investment terms had either expired or were drawing to a close.

 

Due to increasing investor appetite for property at that time, it was not considered an optimum time to sell the buildings as those investors looking to maintain their investment would be liable to miss out on significant capital growth.

 

However, it was recognized that some mechanism had to be provided for people who were looking to exit their investment and which would not have been possible in the stand-alone funds without selling all the properties.

 

To meet the objectives of all investors we therefore implemented a merger scheme between 7 separate stand-alone funds comprising 11 separate office assets in Victoria, New South Wales and Queensland to form the Macquarie Direct Property Fund (now Charter Hall Direct Property Fund).

 

This innovative arrangement had the effect of providing the necessary liquidity for investors looking to exit the fund, while at the same time providing those investors who wished to retain their investment with access to a larger, more diversified fund which, while an unlisted fund, at the time offered daily liquidity in much the same way as an ASX-listed fund.

 

Prior to the on-set of the Global Financial Crisis, the investors who elected to stay in the fund were rewarded with not only a growing dividend return but also an increase in the fund’s unit price since inception of over 30%, thereby vindicating the decision not to sell the assets in the different stand-alone funds and instead implement the merger.

 

 

 

: : EXAMPLE 1

Formation of Macquarie Direct Property Fund