TIMES Properties, a wholly owned subsidiary of Cuscaden Peak Investments, is looking to take Paragon Real Estate Investment Trust : SK6U 0% (Reit) private by way of a trust scheme of arrangement, for S$0.98 per unit.
The offeror is looking to acquire all units in Paragon Reit held by unitholders other than Cuscaden Peak and its subsidiaries.
The offer values the Reit at S$2.8 billion.
Cuscaden Peak Investments is wholly owned by Cuscaden Peak, which is in turn owned equally by Adenium, a wholly owned subsidiary of CLA Real Estate, and Mapletree Fortress, an indirect wholly owned subsidiary of Mapletree Investments. Both CLA and Mapletree are part of the Temasek stable. Ong Beng Seng’s Hotel Properties Limited : H15 0%, which was originally a part of the consortium, announced last month that it no longer holds any stake in Paragon Reit.
In 2022, investment vehicle Cuscaden Peak acquired the then listed Singapore Press Holdings (SPH) Reit, which was mainly a property business after spinning off its media assets. SPH was then renamed Cuscaden Peak Investments.
Cuscaden Peak acquired about a 61 per cent stake in SPH Reit as part of a chain offer following the privatisation of SPH. SPH Reit was renamed Paragon Reit with effect from Jan 3, 2023.
As at the joint announcement date on Tuesday (Feb 11), Times Properties held directly and indirectly approximately 21.5 per cent of the issued units of Paragon Reit.
The directors of Times Properties include Gerald Yong, who is also the chief executive and a director of Cuscaden Peak, as well as Chin Yean Cheng, chief financial officer of CapitaLand Development.
The offer price represents a 10.1 per cent premium to the counter’s last transacted price of S$0.89 on Monday. It also represents a premium over the volume weighted adjusted price – of 10.9 per cent for one month, 11.6 per cent for three months and 12.8 per cent for 12 months.
Long-term competitiveness
Cuscaden Peak Investments and Paragon Reit said the scheme would allow unitholders “to realise their investment in cash at an attractive valuation with no trading costs”, and enable them “to immediately reinvest proceeds into other opportunities”.
They noted that Paragon Reit has one of the lowest free floats among its retail Singapore Reit (S-Reit) peers, and has historically experienced low trading liquidity. Its total assets have grown 1.3 times since its initial public offering in 2013, compared to the average of 2.9 times for other retail S-Reits, they added.
The offeror believes that Paragon Reit “faces trading conditions that will continue to constrain its potential for sustained growth and long-term value creation”.
The Reit’s portfolio comprises three assets and it depends “heavily” on Paragon, which accounts for 72 per cent of the portfolio value. However, the mall’s premier status is being challenged, with increased competition from upcoming retail malls in the surrounding catchment as well as existing malls undergoing major upgrades. Rival malls include voco Orchard, Forum The Shopping Mall and Tanglin Shopping Centre.
“In addition to these competitive pressures, a persistent slowdown in luxury spending post-pandemic, with international luxury spending at 74 per cent of its 2019 peak, has also weighed on Paragon’s performance,” the statement said.
The Reit also owns Clementi Mall in Singapore, and in Australia, a 50 per cent freehold interest in Westfield Marion Shopping Centre.
The offeror believes that a major asset enhancement initiative (AEI) is necessary for Paragon “to maintain its long-term competitiveness”. The mall, which opened in 1986, last went through a major AEI in 2009 at a cost of S$82 million. At the time, 42,000 square feet of space was added to the mall.
However, the offeror pointed out that given the execution risks associated with a significant potential AEI, such as uncertainties around cost and timing, this would be “more suitably carried out in a private setting”.
The proposed AEI would potentially take up to four years to complete, and may include upgrades to Paragon’s facade and interiors, reconfiguration of its spaces and improvements to connectivity, among others.
The mall is likely to retain its position as an upscale one, said Yong of Cuscaden Peak during a media briefing on the offer on Tuesday.
He estimates that the capital expenditure for Paragon’s AEI would range between S$300 million and S$600 million, or between 10 and 21 per cent of Paragon’s FY2024 appraised value. The estimation is based on the capital expenditure per square foot of precedent AEIs by other Reits and Paragon’s gross floor area.
Based on these parameters, and had the AEI occurred in FY2024, Paragon Reit’s pro forma FY2024 adjusted distribution per unit (DPU) would have fallen to between S$0.0163 and S$0.0355. This represents a drop of between 21.4 and 64 per cent from the FY2024 adjusted DPU of S$0.0452.
On whether unitholders should have the option to partake in the AEI, Yong reiterated that there are many uncertainties involved in the asset enhancement plans. These include the time frame of the AEI and market considerations, such as rental cycles.
“Because of all these uncertainties, it is very difficult for the sponsor and offeror to give a very precise underwriting… We just don’t feel it’s suitable for the Reit unitholders to come along with us,” he said.
He noted that the proposed scheme of arrangement would be submitted to the unitholders of Paragon Reit for voting, with the offeror and its concert party group abstaining from the vote.
In the event that the scheme is not approved by unitholders, the offeror said it hopes to continue engaging with Paragon Reit to consider an appropriate plan, as it believes that an AEI “is critical for Paragon to remain competitive”.
On whether this was the final offer, Andy Neo, the director for Asia-Pacific real estate investment banking at Citigroup Global Markets – the financial adviser to the offeror – declined to speculate. He noted that he hoped unitholders will be supportive of the offer put forth for consideration.
Yong added, in response to another question, that while it was possible for Paragon Reit to return to the public market down the road, it was “premature” to speculate on the possibility for now.
Units of Paragon Reit closed 11.2 per cent or S$0.10 higher at S$0.99 on Tuesday.–THE BUSINESS TIMES
