GREENWICH, Conn., Sept. 25 /CNW/ -- Mercury Real Estate Advisors LLC, an
affiliate of Mercury Partners LLC, a real estate investment management company
based in Greenwich, CT, sent the following letter today to the Board of
Directors of International Aviation Terminals, Inc. urging them to explore
strategic alternatives and a potential sale to maximize value.
September 25, 2007
Board of Directors - International Aviation Terminals, Inc.
Ms. Alison Hill
Mr. Robert J. Mair, Q.C.
Mr. Thomas V. Milroy
Mr. Alvin G. Poettcker
Mr. W. John Dawson
Mr. Anthony W. Ryan
AMB Property Canada Ltd.
C/O AMB Property Corporation
Pier 1, Bay 1
San Francisco, CA 94111
Dear Board of Directors:
As you are aware, Mercury Real Estate Advisors LLC ("Mercury"), together
with its managed investment funds, is the largest unitholder in IAT Air Cargo
Facilities Income Fund (the "Fund"), the limited purpose trust that owns all
of the shares of International Aviation Terminals Inc. ("IAT" or the
"Company"). Mercury is currently the owner of approximately 1,365,700 trust
units and has a reported ownership stake of approximately 19.6%. As a long-
term investor focused on maximizing the intrinsic value of the Company's
portfolio, we are writing to urge the Board of Directors of the Company (the
"Board") to hire a reputable financial advisor to explore strategic
alternatives, including a potential sale of the Company.
The Company is the owner of 18 strategically valuable industrial
properties spread across five of Canada's leading airports, with a
concentration in the growing Vancouver market. With approximately 1.1 million
rentable square feet and a tiny equity market capitalization of only C$59.4
million, the Company is simply too small to absorb the necessary leasing,
marketing, and other costs associated with operating the portfolio as well as
the additional regulatory costs associated with being a public company. More
importantly, management and the Board have not purchased a single asset since
October 2000. Finally, the Company actually cut the dividend to $0.15 per
quarter in 2006, down materially from an average of $0.20 per quarter in 2005.
Consequently, we believe a sale of the Company is the only viable action for
the Board to take given the Company's small size and static portfolio.
We believe the Company's high yielding and steady cash flows make it an
extremely attractive acquisition candidate for public real estate companies
and REITs, as well as private institutional investors who actively search the
globe for such rare investments. The Company's portfolio presents a compelling
opportunity for a larger industrial real estate owner seeking to diversify,
strengthen and grow their existing portfolio. A larger, national owner with a
more established platform will also likely be able to improve the operating
performance of the portfolio in addition to achieving other economies of
scale. Currently, the average occupancy of the portfolio stands at 83.3%, a
mere 50 basis points higher than at the end of 2006 and well below the average
for industrial space.
The Company's portfolio of air cargo and aviation related facilities
located at five of Canada's leading airports presents an especially unique
opportunity and therefore warrants a scarcity premium. The Fund's units,
however, are not trading at a premium but a significant discount to the
liquidation value of the Company. Even using extremely conservative
assumptions, the units are trading at a dramatic discount to net asset value.
For example, assuming a tax-free transaction, a sale of the Company at a 5.5%
capitalization rate would result in a value of $17.84 per unit, more than
double the current stock price. At a 6.0% capitalization rate, the
corresponding value per unit would be $16.19, a premium of 88% to the current
Finally, IAT Air Cargo Facilities Income Fund has failed to match the
returns of industry benchmarks. Since December 31, 2002, the Fund has posted
an abysmal total return of 26.7%. In contrast, the S&P/TSX Capped REIT Index
has achieved a total return of 123.8% over this same period. This reflects a
gross underperformance of 97.1%. This degree of underperformance is
unacceptable, especially during a time of stellar real estate returns.
The market for public Canadian real estate transactions has been
extremely active over the last 2 years with 10 transactions totaling almost
C$15 billion (excluding debt) since the beginning of 2006, according to BMO
Capital Markets. There have been 8 Canadian REIT takeovers in the last 18
months alone. In August 2006, Summit REIT received an all cash bid for
$30.00, an 18% premium to the last closing price. This bid represented an
estimated capitalization rate of 5.9%. By way of contrast, the Fund is
currently trading at a net operating income ("NOI") yield of approximately
10.3%. In addition, Summit REIT was purchased at a multiple of funds from
operations ("FFO") of more than 16 times, whereas, the Fund trades at a
multiple of only 10 times trailing twelve month FFO. All these facts,
especially when considered together, support a considerably higher valuation
of the Fund than suggested by its current price.
We believe that an exploration of strategic alternatives is in the best
interest of unitholders and therefore should be pursued immediately by the
Board in accordance with their fiduciary obligations. It is simply
unacceptable for these excellent assets to languish in an inefficient,
miniscule and effectively dead public company. We thank you in advance for
your prompt attention to this critical issue. We welcome the opportunity to
discuss these matters with the members of the Board as soon as possible.
MERCURY REAL ESTATE ADVISORS LLC
David R. Jarvis Malcolm F. MacLean IV
Chief Executive Officer President
For further information:
For further information: Malcolm F. MacLean IV, President of Mercury
Real Estate Advisors LLC, +1-203-769-2980