MPS is a small listed property fund. At the current price of A7.9c it has a market capitalisation of $28.5m. MPS is also listed on the Singapore Exchange, however for simplicity I am just going to work through the AUD numbers.
Without boring you too much, MPS is managed MacarthurCook Funds Management which in turn is run by AIMS Financial Group. There has been (and still appears to be) lots of friction between unit holders and MacarthurCook and to some extent with AIMS too. I have been following this situation for years. It appears the MacarthurCook/AIMS management is staying in place and there is no intention of winding up the MPS fund. In fact, the managers appear to prefer buying more property and not selling. So unlike RCU, we will have to make our money through a re-rating of the stock, which is not as simple as a straight wind-up. Further, the trust is currently making no distributions. Therefore, we should be looking to make a lot more money in order to take on the extra risk, or at least the potential extra time it might take to realise our investment.
The underlying assets are valued at 13.6c, so with the stock trading at 7.9c the discount to assets is a chunky 42%. However, the assets have been marked down heavily thanks to reductions in value of the underlying assets and a key risk is that asset values could be written down further. A snapshot of the most recent balance sheet (31 December 2012) is shown below:
Gross assets stand at $54.3m. The major component of those assets are in listed ($3.7m) and un-listed ($48.4m). Most of the properties are Australian based across a spread of office, retail, industrial and other, and spread across numerous fund managers. MPS is essentially a fund-of-funds as it invests in other property funds.
MPS has minimal debt, which lowers risk as any further write downs aren't overly 'magnified'.
Since 2009 MPS has been in spring-clean mode: selling assets, paying down debt and dealing with problems. A capital raising was undertaken last year and aside from any further problems with the assets themselves, the final piece of the puzzle appears to be paying down debt due by June 30. This debt was part of the capital restructuring and is called OCBC and MPS reports it is in a position to pay this debt which my back-of-the-envelope numbers agree with.
Listed below are some reasons the stock may continue to get re-rated from current levels:
Potential catalyst a) for re-rating: re-commencement of distributions
MPS intends to re-commence distributions when/if the OCBC debt is repaid by June 2013. Some of the underlying assets are income producing, some are not. MPS has indicated the overall distribution yield will be 6.1% p.a. I believe this is on the investment portfolio, not the unit price. Allowing for the discount we can buy the units for translates the distribution yield to 10.4%. That's a pretty attractive return and therefore a good chance for the stock to be re-rated.
When/if the distributions do re-commence, some of the income should be tax-deferred which is a great source of tax efficient income.
The underlying assets are valued at 13.6c, so with the stock trading at 7.9c the discount to assets is a chunky 42%. However, the assets have been marked down heavily thanks to reductions in value of the underlying assets and a key risk is that asset values could be written down further. A snapshot of the most recent balance sheet (31 December 2012) is shown below:
Gross assets stand at $54.3m. The major component of those assets are in listed ($3.7m) and un-listed ($48.4m). Most of the properties are Australian based across a spread of office, retail, industrial and other, and spread across numerous fund managers. MPS is essentially a fund-of-funds as it invests in other property funds.
MPS has minimal debt, which lowers risk as any further write downs aren't overly 'magnified'.
Since 2009 MPS has been in spring-clean mode: selling assets, paying down debt and dealing with problems. A capital raising was undertaken last year and aside from any further problems with the assets themselves, the final piece of the puzzle appears to be paying down debt due by June 30. This debt was part of the capital restructuring and is called OCBC and MPS reports it is in a position to pay this debt which my back-of-the-envelope numbers agree with.
Listed below are some reasons the stock may continue to get re-rated from current levels:
Potential catalyst a) for re-rating: re-commencement of distributions
MPS intends to re-commence distributions when/if the OCBC debt is repaid by June 2013. Some of the underlying assets are income producing, some are not. MPS has indicated the overall distribution yield will be 6.1% p.a. I believe this is on the investment portfolio, not the unit price. Allowing for the discount we can buy the units for translates the distribution yield to 10.4%. That's a pretty attractive return and therefore a good chance for the stock to be re-rated.
When/if the distributions do re-commence, some of the income should be tax-deferred which is a great source of tax efficient income.
Potential catalyst b) settlement of legal claim
While this may be a longer-shot, there is the potential for a further 4.9c resulting from a legal claim against TFML. The Supreme Court has found in favour of Macarthur Cook, which TFML has appealed against. I have no view on what the final outcome of this will be. From an investment perspective it will be a free bonus - and a massive one at that!
Potential catalyst c) buy back of stock
Instead of buying new property, MPS may buy-back its own stock if the 'share price continues to NTA remains at such a steep discount'. Given the stock is so thinly traded, it won't take much at all to power up the price if a buy-back is instigated.
Disclosure: own MPS.
Kristian
While this may be a longer-shot, there is the potential for a further 4.9c resulting from a legal claim against TFML. The Supreme Court has found in favour of Macarthur Cook, which TFML has appealed against. I have no view on what the final outcome of this will be. From an investment perspective it will be a free bonus - and a massive one at that!
Potential catalyst c) buy back of stock
Instead of buying new property, MPS may buy-back its own stock if the 'share price continues to NTA remains at such a steep discount'. Given the stock is so thinly traded, it won't take much at all to power up the price if a buy-back is instigated.
Disclosure: own MPS.
Kristian
and what are your thoughts now
ReplyDeletejust writing up some notes now.
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