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. On occasion for the reason that date of unique funding within the Issuer, the Reporting Individuals have engaged in evaluations of the Issuer and its enterprise, together with participating in discussions with administration, different shareholders and different individuals. In reference to their common evaluate of their funding within the Issuer, and based mostly on present market circumstances and different components, the Reporting Individuals have modified their intent. On November 14, 2022, Centerbridge decided to discover doable 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 concerning the foregoing. The Reporting Particular person could change data with any such individuals, which can be effected pursuant to a number of confidentiality or comparable agreements which can embody customary standstill provisions.
Whereas the Reporting Individuals have engaged in evaluations of the Issuer and its enterprise, together with participating 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 concerning the buying, holding, voting or disposing of any securities of the Issuer. Nonetheless, based mostly on the standing of their analysis of the Issuer and its enterprise up to now and based mostly on present market circumstances, the Reporting Individuals anticipate submitting a Potential Proposal to the Issuer. Any such motion could also be made alone or along side 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 will probably be made, that any Potential Proposal, if made, could be accepted or that any transaction contemplated by the Potential Proposal with the Issuer will probably 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 fairly easy REIT, they personal, develop, buy industrial/logistics properties and lease them out on a triple web lease foundation. Regardless of issues that Amazon is pulling again on their warehouse spending spree, demand for industrial properties stays excessive and cap charges low, in line with INDT CEO Michael Gamzon (from BamSEC) on their current Q3 earnings name:
William Thomas Catherwood BTIG, LLC, Analysis Division – Director & REIT Analyst
Admire that, Michael. And may I stick to that cap fee 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 could be beneath form of what the market is anticipating proper now, do you’ve 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 feel, akin to that remark, it is actually exhausting to select a quantity as a result of it is type of — there’s so few offers. They only really feel virtually your cherry choosing. I may give 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 form of 25% to 30% beneath market, a couple of 600,000 sq. foot portfolio. We have heard that is been awarded, went via form of a a number of spherical course of — and so that is actual time final month, and we have heard it is form of a 4.2%, 4.3% cap fee, which I feel feels fairly low. I might say peak of the market, possibly I’d have guessed that may be form 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 loads of mark-to-market and 5 years of lease time period that traded at a 4.25% Once more, it is not a market we’re in. We have talked about previously, we have a look at it, so we monitor it somewhat bit. That feels fairly low. There’s a deal form of within the Berks County, which is form 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 predict it is not pretty much as good a location usually is traded vast of the Lehigh Valley, and that closed, I feel, 2 months in the past at 4.25%.
So it is actually exhausting to say precisely how a lot issues have moved. Some issues which are going to have a really, very lengthy 15 or 20-year single-tenant web lease with not loads of bumps. That is going to be usually wider, most likely 100 to 125 foundation factors wider. These different offers are wherever from, name it, 25 to 75, however it’s actually exhausting to place a pin on it.
These numbers appear tough to imagine within the present market, particularly when INDT’s shares had been just lately buying and selling with an implied cap fee within the excessive 6%’s, greater than the place they’re at present buying and growing 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 would possibly Centerbridge be keen to pay?
It’s a little bit difficult, due to INDT’s small dimension and progress posture, they’re rising over 20% based mostly on their acquisition and improvement pipeline within the subsequent yr. Relying closely on their current Q3 earnings complement (notably pages 23, 24 and 27):
At a 5% cap fee, once more, type of exhausting to imagine that industrial/logistics cap charges have not moved greater just lately, I give you ~$79/share worth, or 38% greater than Friday’s $57.28/share closing worth. Centerbridge initially invested in INDT throughout the 2021 capital increase, they know the corporate/asset base properly and must be seen as a legit purchaser. At a minimal, possibly they’re attempting to place INDUS in play and Blackstone enters with their limitless checkbook to roll INDT’s belongings alongside Gordon DuGan’s (chairman of INDT) GPT belongings he bought to BX a couple of years again.
I’ve gotten loads of speculative M&A fallacious this yr so I am not speeding so as to add right here, however optimistic the worth of INDT’s actual property will probably be realized a method or one other.
Disclosure: I personal shares of INDT