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Soilbuild Group chairman, Blackstone to take Soilbuild Reit private at S$0.55 per unit

SOILBUILD Group Holdings' executive chairman Lim Chap Huat and Blackstone Real Estate have proposed to take Soilbuild Business Space Reit (Soilbuild Reit) private at S$0.55 in cash per unit.

Soilbuild Group is the sponsor of Soilbuild Reit. The proposed privatisation and delisting is to be effected by way of a trust scheme of arrangement, Soilbuild Reit's manager said on Monday.

The scheme consideration represents a premium of about 34.5 per cent, 34.8 per cent, 53.2 per cent and 29.1 per cent over the volume-weighted average price per Soilbuild Reit unit respectively for the one-month, three-month, six-month and 12-month period up to and including Aug 31. It also implies a price to adjusted net asset value multiple of 0.98 to 1.00 times, which exceeds Soilbuild Reit's historical averages, the offeror noted.

That said, the scheme consideration will be reduced by the amount of any distribution declared, made or paid by the manager for the financial period between Oct 1, 2020 and March 31, 2021.

The offeror is Clay Holdings III, a newly incorporated entity formed for the purpose of the trust scheme. It is owned by Clay Holdings II, which is in turn owned by Mr Lim, as well as Clay Holdings I, an entity established by funds managed by affiliates of Blackstone Real Estate.

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Chong Kie Cheong, chairman and independent non-executive director of the manager, said: "Notwithstanding the board and management team's efforts to maximise value for unitholders over the years, the Soilbuild Reit unit price has implied a high yield and was further impacted by the Covid-19 pandemic.

"After considering the uncertainty of a global recovery and the merits of this proposed trust scheme, we believe it represents a credible offer in the face of challenging market conditions and would like to present it to unitholders for their consideration."

In a media briefing on Monday, Roy Teo, chief executive officer of the Reit manager, said that the impact on the Reit's performance this year up until the third quarter has been muted because the government has given a lot of assistance and grants to the tenants. 

"The uncertainty really starts from Q4 towards next year and can (come from) people working from home, in the office and business park environment. That is the uncertainty that we cannot foresee." 

In a press statement on Monday, the offeror noted that Soilbuild Reit's ability to undertake distribution per unit (DPU)-accretive acquisitions has been limited, partly due to its high DPU yield, which has hindered its ability to bid competitively for third-party assets.

Describing the difficulties the manager has faced in making acquisitions, Mr Teo said: "We wanted to have exposure in Australia. We identified certain good assets, and we think we a little bit of yield accretion, which means it wasn’t that yield accretive when we bought those assets. Apparently, through the (results of the preferential offering announced in August 2019), my take is investors still want yield accretion as a key priority. 

"That is very difficult for us to grow. We want to have good assets and we want to grow the Reit, but shareholders want it to be yield accretive. That is a big challenge... It is very difficult for us to move forward with any acquisition moving ahead."

"Growing Soilbuild Reit through DPU-accretive acquisitions requires its DPU yield to trade sufficiently low and depends on its ability to effectively raise capital to fund such acquisitions. Support from minority unitholders to subscribe for their pro rata share of equity issuance is also critical," the offeror noted.

In addition, the real estate investment trust (Reit) has a relatively low debt headroom of about S$70 million, assuming a 40 per cent loan-to-value ratio (LTV), which is its target leverage level. Increasing LTV above this may raise the cost of debt and risk profile of the Reit, the offeror added.

Given these constraints, the Reit has lagged in growth compared to its peers, the offeror said. "Since its initial public offering in August 2013, Soilbuild Reit has seen its total assets value grow by only 1.5 times, compared to the average of 1.8 times for industrial S-Reits."

As such, the offeror believes that the proposed privatisation provides unitholders with an opportunity to exit the Reit and redeploy capital into other investments.

A delisting will allow the Reit manager to not be constrained by the current 50 per cent leverage limit imposed by the Monetary Authority of Singapore, and the Reit will also enjoy more flexible access to capital markets. The offeror does not intend to introduce any major changes to the business of the Reit presently, but it will be open to opportunities that come along.

Mr Lim, who is also co-founder of Soilbuild Group, said that given the various challenges and constraints faced by Soilbuild Reit, the group has considered many options and discussed potential transactions, including a privatisation, with parties comprising private equity firms, real estate funds, and real estate developers across Hong Kong/China, Australia and the United States over the past few years. Merger proposals have been considered as well.

"We believe that this proposal by Blackstone presents the best option for minority unitholders based on the offers received, representing the highest price received," he said.

Mr Lim is also of the view that Blackstone's proposal is the "most credible" and offers the "greatest deal certainty in terms of timing and execution", backed by its track record of privatisations.

The proposed trust scheme is expected to be effective by March 2021. 

In conjunction with the trust scheme, Soilbuild Reit has also entered into an agreement with related entities of Blackstone to dispose of its Australian assets. With this, the Lim family will no longer hold any stake in the Australian assets upon disposal.

The disposal is inter-conditional with the trust scheme, and intended to facilitate the overall transaction in an "optimal and efficient manner", the offeror said, adding that this would allow "greater certainty of timing for regulatory approvals", and for unitholders to receive the scheme consideration in a "time-efficent manner". The Australian assets disposal will not reduce the scheme consideration, the offeror added.

The manager plans to engage with substantial unitholders to gain their support for the deal following Monday's announcement. Some of the substantial minorities include funds such as Schroders, Vanguard, BlackRock and Deutsche Asset Management.

Among other conditions, the trust scheme and the disposal will be subject to the approval of Soilbuild Reit unitholders. 

The latest announcement comes after the manager on Sept 4 said that Mr Lim had entered into a "non-binding term sheet" in relation to a possible transaction involving his and his family's interests in Soilbuild Reit. As at Dec 14, Mr Lim and his three sons own about 385.6 million units, representing a 30.3 per cent stake in Soilbuild Reit.

For the third quarter ended September, Soilbuild Reit reported a DPU of 1.1 Singapore cents, about 20 per cent higher from 0.918 cent a year ago. Net property income grew 16.5 per cent to S$19.7 million, while gross revenue rose 8 per cent year on year to S$22.9 million. 

This will be Blackstone's second privatisation of a real estate trust in Singapore; its first was of Japanese mall landlord Croesus Retail Trust in 2017 for about S$900 million.

As at 3.41pm on Monday, Soilbuild Reit units were trading at 53.5 Singapore cents, up 2.5 cents or 4.9 per cent.

The counter rose as much as 5.5 per cent or 2.8 cents on the day to reach 53.8 cents at around 1.01pm, a minute after trading resumed. Its trading halt, called on Dec 9, was lifted after the midday break on Monday.

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