Cuscaden Peak offers to privatise Paragon Reit for $2.78b as it eyes major upgrading of Paragon mall
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The offeror plans major renovation and upgrading of Paragon mall to keep it competitive.
PHOTO: ST FILE
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SINGAPORE – The Singapore Exchange-listed real estate investment trust (Reit) that holds Orchard Road’s The Paragon mall has received a $2.78 billion buyout offer from its major shareholder.
Cuscaden Peak Investments – formerly Singapore Press Holdings (SPH) – proposed to privatise and delist Paragon Reit by way of a trust scheme of arrangement, they jointly announced on Feb 11.
Paragon Reit currently owns Paragon mall, which accounts for 72 per cent of the Reit’s value, as well as The Clementi Mall and South Australia’s Westfield Marion Shopping Centre.
The offeror plans to renovate and upgrade Paragon mall to keep it competitive with other Orchard Road malls amid a slowdown in luxury spending.
These plans may include upgrades costing between $300 million and $600 million to the mall’s facade, interior and facilities, with work carried out in phases to avoid the mall’s full closure.
Mr Gerald Yong, chief executive of Cuscaden Peak Investments, explained that given the significant amount of capital needed, weaker investor demand for Reits due to high interest rates and market uncertainties, keeping Paragon Reit listed while undertaking the renovations would not be beneficial to unit holders.
He added that unit holders will be able to vote for or against the move. Should it not be approved, the offeror still intends to engage with Paragon Reit to consider a plan for Paragon mall to stay competitive.
Cuscaden Peak Investments’ proposal to buy Paragon Reit for $2.78 billion, or 98 cents per unit in cash, represents a 7.1 per cent premium over Paragon Reit’s net asset value.
The offer price is also 34.2 per cent higher than the current market price of similar Singapore retail Reits and 8.3 per cent above the average price Paragon Reit has traded at over the past five years, the statement said.
A cash distribution of 2.33 cents per unit for the second half of 2024 was also announced, which will not affect the offer price.
Units of Paragon Reit jumped 10 cents, or 11.2 per cent, to close at 99 cents on Feb 11.
Explaining its rationale for the buyout, the offeror said that Paragon Reit has “faced challenges due to its low trading activity, limited coverage by analysts, and fewer institutional investors compared with other retail Reits in Singapore”.
That has made it harder for the Reit to raise funds to expand as well as renovate properties such as the 30-year-old Paragon mall.
Paragon meanwhile will face fiercer competition from other upscale Orchard Road malls undergoing major upgrades or upcoming redevelopments such as Ming Arcade, Tanglin Shopping Centre, Forum The Shopping Mall, voco Orchard Singapore and HPL House. It is also hurting from a persistent slowdown in luxury spending post-pandemic.
Following the delisting, the offeror plans to renovate and upgrade the mall. The goal is to future-proof Paragon mall without redeveloping or expanding it, the statement said.
Work is expected to take three or four years to complete.
The investment of $300 million to $600 million would be 10 per cent to 21 per cent of Paragon’s 2024 appraised value.
The last time Paragon mall underwent renovations was in 2009, involving improvements to its restrooms and driveways.
Future asset enhancement initiatives would be more suitably carried out in a private setting, so unit holders do not bear the risks associated with renovations, which include a potential drop in net property income and distribution per unit due to higher interest expenses and business disruptions, the statement said.
It added that Paragon Reit’s other assets, The Clementi Mall and Westfield Marion, which together make up 28 per cent of the Reit’s appraised value, are too small to offset the potential impact of the renovations for Paragon mall.
The offer will require amendments to the Paragon Reit Trust Deed, which must be approved by at least 75 per cent of unit holders voting at an extraordinary general meeting (EGM) to be convened by April.
The offer must also be approved by more than 50 per cent of unit holders, representing at least 75 per cent of the value of units held, at a meeting to approve the scheme.
Cuscaden Peak and its subsidiaries, which hold 61.5 per cent in Paragon Reit, will abstain from voting.
The EGM and scheme meeting are expected to be convened by April 2025.
Cuscaden Peak Investments is a subsidiary of Cuscaden Peak, an investment company jointly held by Mapletree Investments and CLA Real Estate.
Both companies are backed by Temasek.
Hotel Properties Limited, backed by Singapore tycoon Ong Beng Seng, is no longer part of the consortium, having exited on Jan 24 to focus its resources on the development of its other assets and projects.
Mr Ong, who is reportedly receiving treatment for cancer, faces two criminal charges in relation to dealings with former minister S. Iswaran
The move to privatise Paragon Reit comes after the sale of several assets over the past two years.
In May 2022, Cuscaden Peak privatised SPH,
Cuscaden Peak acquired a 61.5 per cent stake in SPH Reit in July 2022 as part of a chain offer following the SPH privatisation. SPH Reit, which owns mostly retail properties, including the flagship Paragon mall, changed its name to Paragon Reit
Since then, both Paragon Reit and its sponsor Cuscaden Peak Investments have sold off most of their properties.
In March 2024, Cuscaden Peak Investments and developer United Engineers sold The Seletar Mall in Sengkang, which they had jointly owned, to Allgreen Properties,
Three months later, in June 2024, Paragon Reit announced that The Rail Mall in Upper Bukit Timah Road was up for sale.
A third retail property, The Woodleigh Mall in Bidadari, jointly owned by Cuscaden Peak Investments and Japan developer Kajima Development, has been up for sale for $800 million since July 2024, according to The Business Times.
Both Cuscaden Peak Investments and Paragon Reit have also been offloading properties overseas.
In April 2024, Cuscaden Peak Investments sold its purpose-built student housing assets,
Later in the year, Paragon Reit’s manager announced the sale of Figtree Grove Shopping Centre in New South Wales, Australia, to Melbourne-based fund manager Fawkner Property group for A$192 million (S$168 million).
After the expected completion of Figtree Grove’s sale in the first quarter of 2025, Paragon Reit’s portfolio will comprise three prime retail assets: Paragon, The Clementi Mall and Westfield Marion Shopping Centre.
