Contrasting announcements from two of Macquarie Group’s investment satellites, the CountryWide shopping centre trust and the Macquarie Infrastructure Group.
The shopping centre trust will shrink dramatically after it sells about 80% of its US assets at a steep discount; but a day after cutting its valuation by another $2 billion, MIG revealed slightly better than expected traffic figures for the June quarter .
Macquarie CountryWide agreement to sell its 75 per cent stake in 86 properties for $US1.3 billion ($A1.61 billion) saw its security price rise in Friday’s mixed market. It ended up a solid 10 cents at 61.5 cents, a jump of 19.4%.
The sale represented a 9.1% capitalisation rate and a 24% discount on the 2005 purchase price.
The sale to a US joint venture will take two years and, when complete, will reduce the trust’s portfolio exposure to the sluggish and imploding US retail sector and economy to 25%, compared to a peak of about 70 per cent in 2007.
It should also eliminate $1.38 billion of US commercial mortgage bonds due to be repaid in the next few years and bring in $226 million cash. Gearing will be cut to around 36% from nearly 60 six months ago.
All in all the market seems to be treating news of the sale as a ‘lucky escape’ by another Macquarie Group fund that had looked on the ropes at one stage.
The sale process will take two years from this month and involve three separate phases.
Money from the first part of the sale will be received this half.
That will give the Trust the confidence that a big refinancing due at the end of the year, can happen without too much strain.
The Trust said it is "progressing various refinancing options for the A$450 million CMBS facility, scheduled to mature in December 2009. The facility is secured by a A$755 million portfolio of 44 Australian assets.
"If required, the Trust anticipates that repayment of the facility will be funded from current surplus cash, proceeds of sales completed and in progress, and the un-drawn capacity of the Head Trust facility. Completion of the first phase of the transaction will further improve the Trust’s liquidity position and, if required, will assist in repayment of the CMBS notes.
"Proceeds from the second and third phases of the transaction are expected to be received during calendar year 2010 and will further strengthen the Trust’s balance sheet and provide greater flexibility to meet refinancing obligations and capital requirements in the coming years.".
While the sale will "negatively impact" the Trust’s earnings and net asset backing, investors reckon its better to have some value and a concentration on Australia and NZ, than to be anchored in the mire than is the Us economy and especially shopping centres where several big chains have gone bust and the second biggest centre operator is broke as well.
The sale was part of a strategy foreshadowed at Macquarie CountryWide’s 2008 Unitholder Briefing, aiming to reduce gearing, mitigate near-term refinancing risk, enhance balance sheet strength and refocus the Trust’s portfolio towards Australia and New Zealand.
And MIG says its toll roads have shown "signs of improvement" across its toll roads in Europe and North America.
Just one day after cutting the value of its road portfolio by $2 billion to $5.1 billion, MIG said its roads had all managed small rises in revenue in the three months to June 30 and had reported smaller declines falls in volumes compared to the previous year.
"Whilst the protracted slow down in global economic activity has continued to weigh on traffic volumes, in particular heavy vehicles, there are signs of a stabilisation. This stabilisation, together with changes to tolling structures implemented during the past six to nine months has delivered positive revenue growth on every road in MIG’s portfolio during the quarter.
MIG also notes that relative to the first quarter of 2009 traffic volumes across the majority of the portfolio are showing signs of improvement" MIG told the ASX.
The 30%-owned Toronto 407 toll-road in Canada (which makes up half of its portfolio) reported a 3.1% fall in traffic volumes compared to the June quarter in the previous year, but this was a bit better than the 4.6% fall in the previous March quarter.
The Toronto road was hurt by the continuing fall in heavy road traffic as trade across the Canadian-US border remains weak, especially in cars and car parts. As a result freight movement fell, but while this was a problem in parts of the US, traffic on the Chicago Skyway (co-owned with Cintra of Spain) recovered with an 11.2% rise in volumes and a 9.2% rise in revenue.
The Indiana Toll Road, which has worried some investors because of its low traffic volumes, recovered in the June quarter with a 6.6% improvement in volumes.
But revenues were only up 2.4% because of the continuing low truck movements (heavy trucks pay more than cars).
The M6 toll-road in Britain also reported smaller declines in traffic compared to the previous year, while reporting a 0.8% increase in revenues.
The French APRR toll road reports its figures by the end of this month.
Despite the relatively good news, MIG securities shed 3 cents to $1.395 on Friday.
That was a worse performance than on Thursday when the hardly reacted to the savage June quarter write-downs.
