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Middlefield Canadian Income REIT holding in $4.7bn Blackstone deal

Middlefield Canadian Income REIT holding in $4.7bn Blackstone deal – One of Middlefield Canadian Income’s (MCT) core holding’s (about 2.5% of NAV), Dream Global REIT (Dream Global), looks set to be acquired after funds managed by Blackstone Group (Blackstone) agreed a cash deal on 16 September, worth the equivalent of $4.7bn. The deal is subject to shareholder approval.

Should the Blackstone offer reach the two-thirds approval needed from Dream Global’s shareholders, it will be paying a 18.5% premium on the real-estate company’s ‘undisturbed’ closing share price.  Dream Global’s attraction lies in its 200-unit plus commercial real estate portfolio (mainly offices and warehouses) across Germany, Austria, Belgium and the Netherlands.

Real estate leads MCT sector allocation

MCT’s portfolio typically consists of 40-50 securities, with a minimum of 60% of the fund allocated to Canada. MCT also holds US-based companies. We note that real estate represents MCT’s largest sector allocation in gross terms, as well as the largest overweight against the benchmark S&P TSX composite high dividend index. MCT’s sector allocations and relative weights against the benchmark are shown below (hover the chart for specific figures).

Second time in successive years Blackstone swoops for a MCT real estate holding

The Blackstone/Dream Global deal follows on from Blackstone’s acquisition of another MCT holding, Pure Industrial Real Estate, in 2018. This is alluded to by Dean Orrico, president of MCT’s manager, Middlefield International: “We are delighted by the news that Dream Global has attracted a recommended cash bid from Blackstone at a price that more fully reflects the underlying value of the REIT’s property portfolio. Real estate continues to be the fund’s single largest sector weighting since we believe that many Canadian REITs remain very well positioned as a result of the quality of their assets, the expectation that interest rates will remain lower for longer and the significant demand for real assets from Blackstone and other private institutional investors.  Dream Global represents the second portfolio acquisition by Blackstone in the past 18 months. 

In May 2018, Blackstone completed the acquisition of Pure Industrial Real Estate, a leading industrial real estate company in Canada and the US.  The acquisition of Pure represented a 21% premium to their previous closing price and at the time represented a 3.0% portfolio weighting of MCT. We believe that this demonstrates the enduring interest from major alternative asset managers in the value and investment attributes offered by Canadian REITs.”

Readers interested in further commentary from MCT on their real estate views can click here to access an extract we published from their annual results to 31 December 2018.

Looking at the Association of Investment Companies’ (AIC) ‘North America’ sector classification, MCT has been the best performing fund in NAV terms over the year-to-date (table shown below), based on data compiled by Morningstar.

Also shown below are MCT’s top 10 holdings at 31 August 2019:

wdt_ID Fund NAV YTD return (%) Peer group percentile (%) Share price YTD return (%) Peer group percentile (%) Discount/premium (%), 31/12/18 Discount/premium (%), 17/09/19 Change in discount/premium, %
1 Middlefield Canadian Income 33.80 1.00 17.80 100.00 -11.40 -14.90 -3.50
2 Baillie Gifford US 28.90 20.00 31.40 1.00 2.00 4.20 2.20
3 Gabelli Value Plus+ Trust 20.60 60.00 17.70 80.00 -6.90 -8.50 -1.60
4 BlackRock North American 20.40 80.00 18.50 40.00 -0.20 2.10 2.30
5 North American Income Trust 16.70 100.00 21.00 20.00 -7.00 -0.30 6.60
6 JPMorgan American 21.60 40.00 18.30 60.00 -5.20 -5.50 -0.30

Source: Morningstar, Marten & Co
wdt_ID Company Sector % of NAV
1 JPMorgan Chase & Co. Financials 5.50
2 Parkland Fuel Corp. Industrials 5.20
3 AT&T Inc. Communication Services 4.70
4 Northland Power Utilities 4.50
5 Pembina Pipeline Pipelines 4.40
6 Blackstone Group Financials 4.00
7 Brookfield Property Partners Real Estate 3.80
8 Bank of Nova Scotia Financials 3.60
9 Gibson Energy Inc. Pipelines 3.50
10 Canadian Imperial Bank Financials 3.40

Source: Middlefield Canadian Income

MCT/DRG.UN/BX: Middlefield Canadian Income REIT holding in $4.7bn Blackstone deal


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