Maplewood International REIT (MWI-UN.V) – Asset Sale – 32% Upside

Current price: C$0.63

Distribution: C$0.83

Upside: 32%

Expected date: TBD

Management circular document (Aug’18)

The idea was shared by Patrick.

 

The stock is extremely illiquid – over the last two months shares were trading only one day/month with an average $9k volume.

Maplewood International REIT is selling its only and single asset and will distribute the proceeds to shareholders. Given that current estimated distribution size is C$0.83/unit this could potentially be quite a profitable trade, however a considerably prolonged timeline, and no proper updates from management for 1.5 years is definitely concerning. Moreover, the management has already tried selling the property in 2016, but failed and did not provide any proper explanation. So there’s a risk that same thing might happen again.

The company has four insiders and they own 34% of the stock yet receive no compensation as trustees. This is quite odd, but in this case its a positive thing as the management should be incentivized to sell the property and receive the proceeds from the distribution.

 

Background

Maplewood International REIT was founded in 2013 with intention of allowing Canadian investors to have access to European real estate market. The company bought 130k sq.ft. industrial complex located in the Netherlands (location). Nonetheless, REIT did not manage to grow any further due to poor public equity raising conditions in Canada (management explanation).

As operating a REIT with only one property is inefficient, in September 2015 it was decided to liquidate it and distribute the proceeds to shareholders. In Feb’16 a non-binding agreement was signed to sell the industrial complex at €6.91m. It was stated that the buyer is a prominent European private equity real estate firm, but no names were mentioned. After that no updates were given by the management until 2017, when plans were changed to looking for other alternatives including keeping the property indefinitely. No further results were given about the above mentioned sale.

 

Current situation

In July’18 the company has entered into a non binding conditional agreement with a certain (again the name wasn’t disclosed) European real estate private equity group to sell the property for €7.3m (C$10.9m then). The offeror was granted exclusivity for due diligence for two months. The sale was approved by shareholders on the 13th of August. Since then the company made no announcements neither on the non-binding offer nor on the process of a sale except a few standart copy-pasted sentences saying that they continue to actively market the property and will report if there are any further updates.

This inability to sell the industrial complex is strange. The property is 100% rented to a large industrial components company Rexnord, which has 20 facilities in Europe. Rexnord sales in Europe are showing strong growth and the remaining lease term is over 6 years (I am guessing lease extension is very likely). So overall it seems like a stable tenant with little possibility of moving away.

Rexnord annual net sales

Moreover, the property generates about C$0.9m of annual income after direct property expenses, so the current valuation (C$9.81m) seems reasonable.

Under the Sale Resolution that was approved by shareholders (Aug ’18) the management was authorized to sell the property for not less than €6.75m (C$9.8m currently) within 25 months after the meeting. In Q3’19 the company has done an independent appraisal of the property and the final value ended up 10% below the previous valuation (C$9.81m vs C$11.2m). Such a considerable drop in value is a bit concerning, however maybe it will incentivize the management to move as the further drops in value will not allow them to sell the property without another shareholder approval.