Monday, March 27, 2023

Clark Avenue Worth: INDUS Realty Belief: Potential Supply from Centerbridge

On a quiet Black Friday, non-public fairness agency Centerbridge Companions filed a 13D on INDUS Realty Belief (INDT) ($590MM market cap) stating they “anticipate submitting a Potential Proposal” to accumulate all of the excellent shares they do not personal.

Merchandise 4. Goal of Transaction

The Reporting Individuals initially acquired the shares of Frequent Inventory for funding functions. Once in a while because the date of unique funding within the Issuer, the Reporting Individuals have engaged in evaluations of the Issuer and its enterprise, together with partaking in discussions with administration, different shareholders and different individuals. In reference to their common evaluate of their funding within the Issuer, and primarily based on present market situations and different components, the Reporting Individuals have modified their intent. On November 14, 2022, Centerbridge decided to discover attainable strategic transactions involving the Issuer, together with pursuing a proposal to accumulate the excellent shares of Frequent Inventory not at present held by the Reporting Individuals (a “Potential Proposal”) and to speak with, amongst others, administration, the Board of Administrators of the Issuer (the “Board”), stockholders and different stakeholders of the Issuer, potential acquirers, service suppliers and debt and fairness financing sources, and/or different related events relating to the foregoing. The Reporting Particular person might change data with any such individuals, which can be effected pursuant to a number of confidentiality or related agreements which can embody customary standstill provisions.

Whereas the Reporting Individuals have engaged in evaluations of the Issuer and its enterprise, together with partaking in preliminary discussions, the Reporting Individuals haven’t definitively decided to make a Potential Proposal or in any other case with respect to any particular actions relating to the buying, holding, voting or disposing of any securities of the Issuer. Nevertheless, primarily based on the standing of their analysis of the Issuer and its enterprise to this point and primarily based on present market situations, the Reporting Individuals anticipate submitting a Potential Proposal to the Issuer. Any such motion could also be made alone or at the side of stockholders and different stakeholders of the Issuer, potential acquirers, service suppliers, debt and fairness financing sources and/or different related events and will embody a number of functions, plans or proposals that relate to or would lead to actions required to be reported herein in accordance with Merchandise 4 of Schedule 13D.

The Reporting Individuals haven’t but decided what the phrases of any such Potential Proposal could also be and no assurances may be provided that any Potential Proposal shall be made, that any Potential Proposal, if made, can be accepted or that any transaction contemplated by the Potential Proposal with the Issuer shall be consummated. No binding obligation on the a part of any of the Reporting Individuals will come up except and till mutually acceptable definitive documentation has been executed and delivered.

INDUS is a reasonably easy REIT, they personal, develop, buy industrial/logistics properties and lease them out on a triple internet lease foundation.  Regardless of considerations that Amazon is pulling again on their warehouse spending spree, demand for industrial properties stays excessive and cap charges low, in keeping with INDT CEO Michael Gamzon (from BamSEC) on their current Q3 earnings name:

William Thomas Catherwood BTIG, LLC, Analysis Division – Director & REIT Analyst

Respect that, Michael. And may I follow that cap charge remark that you simply made. Clearly, you are in a choose focused set of markets. However with the remark that the cap charges on transactions can be beneath type of what the market is anticipating proper now, do you’ve got a way of how a lot cap charges have moved in your particular markets?

Michael S. Gamzon INDUS Realty Belief, Inc. – CEO, President & Director

Sure, I believe, akin to that remark, it is actually arduous to select a quantity as a result of it is kind of — there’s so few offers. They simply really feel nearly your cherry selecting. I can provide you an instance. In Charlotte, there was a pleasant portfolio positioned close to the airport. It had 3.5 years of weighted common lease time period. We thought the rents had been type of 25% to 30% beneath market, a few 600,000 sq. foot portfolio. We have heard that is been awarded, went by type of a a number of spherical course of — and so that is actual time final month, and we have heard it is type of a 4.2%, 4.3% cap charge, which I believe feels fairly low. I would say peak of the market, possibly I might have guessed that will be type of a 3.8. So has that moved 40 foundation factors. That appears fairly tight in comparison with the place debt spreads have widened and different issues, however that is the place that is traded.

We all know there’s been a closed deal in Savannah with not plenty of mark-to-market and 5 years of lease time period that traded at a 4.25% Once more, it isn’t a market we’re in. We have talked about prior to now, we take a look at it, so we monitor it somewhat bit. That feels fairly low. There’s a deal type of within the Berks County, which is type of the Western submarket of the Lehigh Valley. We really feel the core of the two Jap counties. However — that is additional West. So we expect it isn’t nearly as good a location usually is traded huge of the Lehigh Valley, and that closed, I believe, 2 months in the past at 4.25%.

So it is actually arduous to say precisely how a lot issues have moved. Some issues which can be going to have a really, very lengthy 15 or 20-year single-tenant internet lease with not plenty of bumps. That is going to be usually wider, most likely 100 to 125 foundation factors wider. These different offers are anyplace from, name it, 25 to 75, however it’s actually arduous to place a pin on it.

These numbers appear troublesome to imagine within the present market, particularly when INDT’s shares had been lately buying and selling with an implied cap charge within the excessive 6%’s, greater than the place they’re at present buying and creating new industrial/logistics properties.  With their fairness buying and selling the place it’s, elevating future fairness after finishing their present pipeline (2023) appears briefly off the desk.  It is smart that non-public fairness would come knocking on their door, so what may Centerbridge be prepared to pay?

It’s a little bit difficult, due to INDT’s small measurement and development posture, they’re rising over 20% primarily based on their acquisition and growth pipeline within the subsequent 12 months.  Relying closely on their current Q3 earnings supplement (notably pages 23, 24 and 27):

At a 5% cap charge, once more, kind of arduous to imagine that industrial/logistics cap charges have not moved greater lately, I give you ~$79/share worth, or 38% greater than Friday’s $57.28/share closing value.  Centerbridge initially invested in INDT through the 2021 capital increase, they know the corporate/asset base properly and ought to be seen as a legit purchaser.  At a minimal, possibly they’re making an attempt to place INDUS in play and Blackstone enters with their limitless checkbook to roll INDT’s property alongside Gordon DuGan’s (chairman of INDT) GPT property he bought to BX a couple of years again.

I’ve gotten plenty of speculative M&A unsuitable this 12 months so I am not speeding so as to add right here, however optimistic the worth of INDT’s actual property shall be realized a method or one other.

Disclosure: I personal shares of INDT

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