Mirvac Group (“Mirvac”) [ASX:MGR] today announced it has entered into a Merger Implementation Deed with Mirvac Real Estate Investment Trust (“MRZ”) [ASX:MRZ] in relation to an offer to acquire all of the issued units in MRZ (the “Offer”). Mirvac currently owns 24.6% of MRZ.
The Offer is proposed to be implemented by way of a trust scheme, requiring MRZ Unitholder approval (the “Scheme”).
A subcommittee comprised solely of Independent Directors of Mirvac REIT Management Limited, the responsibility entity of MRZ, have recommended that MRZ Unitholders vote in favour of the Scheme in the absence of a superior proposal.
The Independent Expert’s opinion includes the statement that the Offer is in the best interests of MRZ Unitholders, in the absence of a superior proposal.
Summary of the Offer Under the terms of the Offer, MRZ Unitholders will be able to elect to receive:
– cash and scrip consideration: cash of $0.50 per MRZ unit for the first 20,000 MRZ units held, and 1 Mirvac stapled security for every 3 MRZ units held above 20,000 MRZ units; OR
– 100% scrip consideration: 1 Mirvac stapled security for every 3 MRZ units held.
If an election is not made, MRZ Unitholders will receive the cash and scrip consideration.
In addition, if the Scheme becomes effective, all MRZ Unitholders will receive a special cash distribution equal to 1.0 cent per MRZ unit held by them on the record date being 7.00pm on 2 December 2009. Mirvac stapled securities issued to MRZ Unitholders under the Offer will rank equally with all existing Mirvac stapled securities with full entitlement to the Mirvac December quarter distribution.
Mirvac has arranged a Sale Facility where MRZ Unitholders not wishing to retain all of their Mirvac stapled securities issued under the Scheme, will have part or all of their holding sold on their behalf. Foreign MRZ Unitholders1 will have any Mirvac stapled securities to which they would have become entitled sold through the Sale Facility on their behalf. Further information on the Sale Facility will be outlined in the Explanatory Memorandum which is expected to be sent to all MRZ Unitholders on 30 October 2009.
Mirvac and MRZ have also entered into a Put and Call Option Deed for the acquisition of 15-25 Furzer Street, Woden, Australian Capital Territory (“Woden Development”) for a total consideration of $208.8 million (subject to usual completion adjustments), representing an initial yield of 7.9 per cent. The Put and Call Option Deed will only become exercisable in the event that Mirvac does not complete the acquisition of MRZ, MRZ Unitholders approve the grant of the
call option and the exercise of the put option in the Put and Call Option Deed at a subsequent Unitholder meeting and the satisfaction of certain other conditions.
Implied Offer premium analysis
Based on the one month VWAP of Mirvac stapled securities of $1.63 on 9 October 2009, the trading day prior to announcement, the scrip component of the Scheme Consideration represents an implied value of $0.54 per MRZ unit. This represents a premium of:
• 39.2% to the closing price of MRZ units of $0.39 on 12 August 20092;
• 56.0% to the 1 month VWAP of MRZ units of $0.35 to 12 August 20092; and
• 60.6% to the 3 month VWAP of MRZ units of $0.34 to 12 August 20092.
Mirvac funding of the transaction
Mirvac will fund the entirety of the transaction (including transaction costs and repayment of all MRZ’s existing debt) from a combination of Mirvac’s existing cash reserves and the issue of new ordinary stapled securities.
Benefits of the transaction
Mirvac believes the combination of MRZ’s and Mirvac’s portfolios and operations will create a stronger and more diversified property investment portfolio, benefiting both existing and new Mirvac Securityholders.
The proposed transaction is expected to deliver 2.9% earnings accretion to Mirvac Property Trust in the 2010 financial year3 and expands Mirvac’s ownership of Australian income producing assets by an additional $1.0 billion4. The Offer, if approved by MRZ Unitholders, is an additional step in executing Mirvac’s stated simplified strategy of focusing on its two core Divisions:
Investment and Development.
1 Unitholders that have a registered address outside Australia and New Zealand and their respective territories.
2 The day prior to Mirvac’s announcement of preliminary discussions with MRZ in relation to a potential merger.
3 Full details of the assumptions underlying these calculations are contained in the Explanatory Memorandum which is expected to be sent to all MRZ Unitholders on 30 October 2009.
4 MRZ’s portfolio book value as at 30 June 2009.
The proposed transaction is also expected to provide the following additional benefits to Mirvac:
• increases recurring income through the ownership of additional Australian investment grade assets;
• improves security of earnings, which may have positive implications for Mirvac’s credit rating metrics and subsequently provides greater access to debt capital markets to fund future acquisitions and opportunistic projects;
• continues capital repatriation via the orderly disposal of non core assets in an improving market; and
• increases the index weighting of Mirvac.
MRZ as a stand alone vehicle is facing several funding challenges:
• gearing at 30 June 2009 is 44.6% versus a covenant limit of 45.0%. The covenant requires gearing to further reduce to 40.0% in September 2010;
• interest cover ratio (“ICR”) as at 30 June 2009 was 1.91 times versus a covenant of not less than 1.75 times;
• significant vacancy at 10 – 20 Bond Street, Sydney commencing from January 2010, is expected to materially impact earnings, distributions and the ICR covenant; and
• debt repayment of $238 million due in September 2010.
The proposed transaction is a solution to the funding challenges that MRZ currently faces and also provides MRZ Unitholders with:
• greater liquidity, with the option to receive either cash of $0.50 per MRZ unit for the first 20,000 units held and 1 Mirvac stapled security for every 3 MRZ units held above 20,000 units or 100% scrip consideration; and
• the opportunity to become a Securityholder in Mirvac, benefits of which include:
> investment in a larger, more widely traded and well capitalised vehicle with potential upside from the future earnings growth in both the Investment and Development Division;
> the opportunity to retain core assets including an interest in the Woden Development, which if MRZ remains as a stand alone entity, will have to be sold, and 10-20 Bond Street, Sydney, which will be repositioned following a full refurbishment;
> greater certainty surrounding future distribution payments; and > a more widely traded investment, in a top 5 entity of the S&P / A-REIT 200 index1.
Although the implied value of the Offer consideration is at a discount to MRZ’s most recent net tangible asset (“NTA”) value of $0.852, Mirvac believes that in the current market environment, NTA does not adequately reflect the downside potential and significant uncertainty that has arisen due to MRZ’s asset rationalisation program and current earnings, funding and liquidity concerns.
Managing Director of Mirvac, Nicholas Collishaw said, “We are pleased to offer this opportunity for MRZ Unitholders to become part of the Mirvac growth story. We believe that the merger provides MRZ Unitholders the option to diversify their property exposure by investing in Mirvac – a leading Australian integrated real estate group underpinned by one of the lowest geared balance sheets in the A-REIT sector.”
The detailed terms and conditions governing the Offer are contained in the Merger Implementation Deed, a copy of which is attached to this announcement.
Mirvac Group is being advised by J.P. Morgan and Macquarie Capital Advisers on the transaction.
This statent and further information is available from: http://mirvac-group.assets2.blockshome.com/assets/9vzGvASu1xGo1WC/20091012-mgr-asx-announcement.pdf