Soilbuild Group chairman, Blackstone to take Soilbuild Reit private at 55 cents per unit

SINGAPORE (THE BUSINESS TIMES) - Soilbuild Group Holdings' executive chairman Lim Chap Huat and Blackstone Real Estate have proposed to take Soilbuild Business Space Reit (Soilbuild Reit) private at 55 cents in cash per unit.

The proposed privatisation is to be effected by way of a trust scheme of arrangement, Soilbuild Reit's manager said on Monday (Dec 14).

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.

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.

Mr 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 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.

"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 $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 with its peers, its manager 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.

Mr Lim, who is also co-founder of Soilbuild Group Holdings, 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.

"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 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.

The manager has extended its trading halt called on Dec 9. Trading will resume after the midday break on Monday. The counter last traded at 51 cents on Dec 8.

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