Blackstone offers $1.17 per unit for Croesus Retail Trust

Croesus Shinsaibashi in Osaka, one of the Japan-based retail business trust's 11 malls in Japan - which add up to a $1.4 billion portfolio. The trust had four malls when it was listed in 2013.
Croesus Shinsaibashi in Osaka, one of the Japan-based retail business trust's 11 malls in Japan - which add up to a $1.4 billion portfolio. The trust had four malls when it was listed in 2013.PHOTO: CROESUS RETAIL TRUST

Offer exceeds price targets of analysts; buyout will be via a scheme of arrangement

American private equity firm Blackstone has made a cash offer to privatise Croesus Retail Trust at $1.17 per unit in an all-or-nothing deal.

The offer price implies a $900.6 million equity value for the Japan-based retail business trust, which has a 113 billion yen ($1.4 billion) portfolio of malls in Tokyo, Osaka, Hokkaido and other prefectures.

The buyout will be via a scheme of arrangement.

This means Blackstone needs more than 50 per cent of voting unit holders representing at least 75 per cent in value of the total voting units to agree to the buyout, which is expected to be completed by the fourth quarter of this year.

Croesus unit holders who accept the offer will also get to keep the September distribution of 4.06 cents per unit.

At $1.17 in cash for each Croesus unit, the offer is a premium of about 38 per cent over the volume-weighted average price of 85 cents per unit for the 12-month period up to April 25.

Croesus units jumped by 12 cents or 11.37 per cent to $1.175 yesterday once trading resumed.

  • 38%

    Approximate premium over the volume-weighted average price of 85 Singapore cents per unit for the 12-month period up to April 25.

    11.4%

    What Croesus units jumped by yesterday once trading resumed, or 12 cents to $1.175.

The $1.17 offer also translates to a price-to-book value of 1.23 times, better than the 1.03 times ratio that Saizen Reit reaped from another private equity player, Lone Star, for its portfolio of Japanese residential properties in 2015.

In comparison, Capitaland's final offer price for the privatisation of CapitaMalls Asia in 2014 worked out to a price-to-book value of 1.28 times, said Religare Capital Markets.

Analysts noted that Blackstone's offer exceeded all their price targets, making it an attractive one.

Mr David Lim, chairman and independent director of Croesus Retail Trust, said: "We are pleased to receive Blackstone's proposal... we believe the scheme provides an opportunity for our unit holders to realise their investment for cash at a significant premium."

Mr Lim is also an independent director of G.K. Goh Holdings, which is controlled by GKG Investment Holdings (GKGI). GKGI is Croesus' largest investor with a 5.96 per cent stake.

Mr Christopher Heady, Blackstone's head of Asia real estate, said the deal was "a good opportunity for Blackstone's real estate business to further expand its platform in Japan".

Analyst Crispin Francis noted on research platform Smartkarma that Blackstone was likely considering a relisting of Croesus' assets in Japan down the road.

He noted that Japanese retail Reits trade at an average dividend yield of 4.4 per cent whereas Croesus, at $1.055, had a 6.3 per cent dividend yield.

"If Croesus Retail Trust were to be listed in Japan, it would (be) priced, at the very minimum, at a 5 per cent yield. This translates to a price of $1.32," said Mr Francis.

In its outlook update last month, Croesus noted that commercial land prices in Tokyo, Nagoya and Osaka have continued to appreciate.

"Property prices in Osaka, in particular, have risen significantly due to an increase in foreign visitors, driving cap rate compressions even further," it said in its third-quarter report. It also reported a 14.4 per cent jump in third-quarter net property income.

"This has given rise to greater competition among Japanese real estate investment trusts and property players, for retail property in prime locations."

Croesus has more than doubled its asset size to 11 malls in Japan, from just four at the point of its listing in 2013. Its market cap has also doubled since then.

Croesus units closed at $1.055 last Friday before the offer was announced, working out to a market cap of $814 million.

Croesus first mentioned that it had been approached for a possible takeover on April 26.

A version of this article appeared in the print edition of The Straits Times on June 29, 2017, with the headline 'Blackstone offers $1.17 per unit for Croesus Retail Trust'. Print Edition | Subscribe