Blackstone's S$900 million offer for Croesus seen as attractive

Singapore

UNITS of Japanese mall owner Croesus Retail Trust (CRT) soared past Blackstone's offer price to hit a record high after the US private equity firm made an offer for all the units in CRT.

The trust added 12 cents or 11.4 per cent to close at S$1.175, with 45.2 million units traded, making it the third most active counter on the market. This is significant for a counter with low trading liquidity usually.

Confirming market speculation, CRT said on Wednesday that a company incorporated by funds advised by Blackstone Real Estate has made an offer for all its units by way of a trust scheme, at S$1.17 in cash per unit.

This values CRT at about S$900.6 million. In addition, assuming that the deal is completed by Oct 31, 2017, unitholders may receive distributable income of up to about S$31.3 million, translating to about 4.06 Singapore cents per unit. The scheme consideration will not be reduced by these distributions.

Justin Tang, director of global special situations at Religare Capital Markets in Singapore, said the offer price is in line with past precedents.

The closest comparable deal is CapitaLand's acquisition of CapitaLand Mall Asia in 2014, the latter representing most of its parent company's interest in retail properties. The final offer price was at 1.28 times price-to-book ratio. Blackstone's offer price for CRT, including the distribution, is a similar 1.26-time multiple.

Should the deal close after end-October, unitholders may receive up to an additional 90 per cent of CRT's distributable income for the period from Nov 1, 2017 to the effective date.

Both CRT and the offeror agreed that the scheme presents an opportunity for unitholders to realise their investment at an attractive valuation, and at significant premiums to the historical trading prices of the units, the net asset value per unit and the net tangible asset per unit.

The price carries a premium of about 38 per cent to the 12-month volume-weighted average price per unit. Mr Tang believes that it will be hard for anyone to block the deal, as the shareholder register does not contain any names that are capable of single-handedly blocking the scheme, plus there is no reason to.

Even the biggest unitholders hold stakes in bite-sized portions of 3-5 per cent. "It would take a concerted effort by minorities to band together to vote against the offer," he said.

A simple majority of more than 50 per cent of the total number of unitholders, representing at least 75 per cent in value of the units held by unitholders present and voting at the scheme meeting, is needed to approve the scheme.

Robson Lee, partner of law firm Gibson Dunn, pointed out that unlike a general offer, a trust scheme - akin to a scheme of arrangement - is an "all-or-nothing" arrangement.

"In other words, it is a neater way, because if the scheme meeting does not meet the requisite approval, then the whole offer dies. It also means that the offeror is confident that it will be able to receive the requisite approval. It is a very expedient way to privatise the retail trust, especially if the offeror knows that the price is definitely at a very attractive premium."

Christopher Heady, senior managing director and head of real estate Asia of Blackstone, said: "Croesus Retail Trust has an established portfolio of quality Japanese retail assets. This transaction represents a good opportunity for Blackstone's real estate business to further expand its platform in Japan and a chance to work together with the proven management team and staff at Croesus."

CRT owns 11 malls valued at about S$1.5 billion, spread across Tokyo, Osaka, and other prefectures such as Hokkaido, Hiroshima and Fukuoka.

Blackstone has a number of assets in Japan currently, but none of them are retail properties. They have invested in mainly residential and industrial properties in Japan in the past.

Citigroup Global Markets Singapore is advising the trustee-manager, while DBS is advising the offeror.