What were they thinking?
All everybody knows would be that the decisions made by WPT Industrial REIT following an eight-month strategic review – which didn’t look for a buyer for the entire company – have disappointed investors and many property analysts.
How much? The units, which traded in the US$11 range within the week prior to the decision’s release, have fallen, by about US$2 with an all-time low, closing Thursday at US$9.10. Trading volume continues to be bigger than normal along with a volume of analysts have either changed their rating or their target price.
Overall five in the seven analysts who cover the TSX-listed REIT – whose assets are available in the U.S – rate the company a buy while using the other two deeming it a hold. Before the review, WPT was rated a buy by all seven. Price targets now change from US$11.25 to US$12.75.
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Neil Downey, Md, Global Research, at RBC Capital Markets termed the “review outcome,” no less than soon, as “disappointing. We’d thought the REIT’s modest size, high quality, albeit largely secondary market portfolio would attract a powerful en-block bid.”
Downey made those remarks after the review that saw Alberta Investment Management Corp. become a large shareholder – with the majority of that stake from the purchase of units owned by the REIT’s advisor, Welsh Property Trust. Even though AIMCo is paying an above-market price of US$11.75 per unit, “no such premium or liquidity avenue were deliver to the benefit of other unit holders,” he wrote.
In accessory for as being a large investor – using a possible 29 percent stake – likely to additional benefit for AIMCo: it’s a partner in the new management company WPT Capital Advisors which will manage the REIT as well as other funds which may be developed. In this way AIMCo reaches another position than other unitholders.
That few the various interests held by WPT’s unitholders can be a theme Downey has noted previously. Last May Downey “highlighted the potentially conflicting interests between one sizable investor utilizing a shorter-term internal rate of return-driven goal and lots of unitholders and also require preferred a long-term return profile, albeit using a lower IRR.”
Never someone to restrain, Downey, inside the recent note, added: “In surprise fashion, these inherent conflicts have the symptoms of materialized.” After noting the “asymmetrical economics intended for the advisor,” Downey promptly cut his rating and target price (to US$11.25 from US$13.25.)
Downey is not completely negative around the deal – even when many of the potential positives “are vulnerable to take several years to materialize.” Two positives would be the “endorsement” with a large and complicated institutional investor, as well as the chance of the REIT to register in opportunities that may leave the WPT pipeline.
Jimmy Shan, a genuine estate analyst at GMP Securities also reduced his target, while keeping his buy rating. “The disappointing news is the fact that after building a full process in what will be a hot investment market, all sorts of things not any sale,” he was quoted saying.
For its part, WPT said through the strategic review process, “the REIT explored numerous alternatives. The REIT received several expressions of great interest from prospective purchasers and strategic partners.” However, “after careful review, its Board of Trustees unanimously determined the transactions announced today have been in the most effective interests within the REIT which is unitholders.”
Maybe, in his note, Shan added, “management offered little information on the process.”
bcritchley@nationalpost.com
