Multiplex SITES Trust – Investor Update & Buy Recommendation

On Monday 18 February, Brookfield Funds Management Limited, as Responsible Entity of Multiplex SITES Trust (SITES RE & ASX: MXUPA)), provided an update to SITES holders.

Options were granted in 2010 and 2013 by Brookfield Holdings (Australia) Limited (BHAL) to Brookfield Property Partners (BPY) over the assets of the Brookfield Australia Property Trust (BAPT). These options have now been exercised and BAPT has entered into conditional sale agreements to dispose of the optioned properties. These properties form the bulk of BAPT’s remaining office property portfolio. Completion of the sale is subject to some financing, regulatory approvals and co-owner consents and is expected to complete on or around 30 September 2019.

As noted in the announcement, until completion of the portfolio sale, BAPT will remain the indirect owner of the properties subject to option arrangements. Net income from these properties will continue to be available to BAPT to meet its financial obligations, including with respect to SITES. Once the properties are sold, the proceeds received may be held as cash (or other liquid assets), reinvested by BAPT or distributed to its parent.

At such time, the SITES RE will assess BAPT’s net asset position and cashflow in determining what, if any action, to take (which may include a redemption of SITES at Face Value ($100) for each of the SITES plus unpaid distributions at that time, if any).

The SITES RE will continue to monitor progress and timing of the Portfolio Sale and will provide updates to SITES holders on any material developments as they arise.

We believe that the MXUPA instrument will be fully redeemed late in Q3 or early in Q4 2019 and the market broadly agrees with us with the price appreciating strongly from around 85 cents before the announcement to around 93 cents at close of 18 February 2018. This follows a few years of slowly creeping up from 70 cent lows in 2016.

We would caution investors that there is no obligation to redeem the notes, nor is there any obligation on the Trust to declare distribution payments.

We have revised our Hold recommendation to Buy after changing our expected maturity date to 30 September and which targets an annualised Yield to Maturity (from a price of 93.5 cents) of 18.8% (three coupons of about 1.5 cents plus the pick-up to par of 6.5 cents over a little over seven months).