Minority unit holders to decide on Cuscaden Peak’s Paragon Reit buyout offer

SINGAPORE – Minority shareholders of Paragon Reit will soon have to vote for or against an offer by Cuscaden Peak Investments to buy them out and take the real estate investment trust (Reit) private.

Cuscaden Peak Investments – formerly Singapore Press Holdings (SPH) and a major shareholder of Paragon Reit – on Feb 11

proposed to buy the Reit for $2.78 billion,

or 98 cents per unit in cash, under a trust scheme of arrangement.

Unlike a general takeover, a trust scheme of arrangement is subject to court approval to ensure fairness and transparency.

RHB analysts point out that there is a good chance of a successful deal unless a potential competitive bid emerges, given the decent premium offered. In the absence of a competing offer, Mr Gerald Wong of research platform Beansprout said that investors should accept the current offer as it is above precedent privatisations and above the trading price of Paragon Reit for the past two years.

The offer price of 98 cents is a 7.1 per cent premium over the Reit’s net asset value (NAV) and 34.2 per cent higher than the current market price of similar Singapore retail Reits. It is also 8.3 per cent above the average price Paragon Reit has traded at over the past five years.

A final dividend of 2.33 cents per unit for the second half of 2024 was also announced. Units of Paragon Reit closed at 99 cents on Feb 11, up 11.2 per cent, after it resumed trading following a trading halt.

Cuscaden Peak Investments, which is backed by Temasek subsidiaries Mapletree Investments and CLA Real Estate, plans to spend between $300 million and $600 million to renovate and upgrade Paragon shopping mall to make it more competitive than other malls in Orchard Road. The mall makes up 72 per cent of the Reit’s value.

Cuscaden Peak Investments argued that the high capital expenditure (capex) and extent of the renovations involved are expected to lead to risks for unit holders, such as business disruptions that could impact net property income and dividends paid. It added that the Reit’s other assets – The Clementi Mall and Westfield Marion – together make up 28 per cent of the Reit’s appraised value and are too small to offset the potential impact of the renovations for Paragon mall.

Units of Paragon Reit are also poorly traded, at a time when investor demand for Reits has weakened due to high interest rates and market uncertainties. As such, the renovations would not be beneficial for unit holders, and be best carried out in a private setting.

The offer will need 50 per cent of unit holders, representing at least 75 per cent of the value of units held, to vote in favour at a meeting to be convened by April for the deal to be successful. Cuscaden Peak Investments and its subsidiaries, which hold 61.5 per cent in Paragon Reit, will abstain from voting.

Unit holders should note that if the offer is not approved, Cuscaden Peak Investments still intends to engage with Paragon Reit to consider a plan for Paragon mall to stay competitive.

While still preliminary, those plans involve upgrades to the mall’s facade, interior and facilities, with work to be carried out in phases over three to four years.

It is also worth noting that unlike most of its other assets, including Seletar Mall, Woodleigh Mall and The Rail Mall, which were divested or put up for sale over the past two years, Cuscaden Peak Investments not only retained Paragon mall, but plans to invest heavily to keep it appealing to investors. This implies that Cuscaden Peak Investments still sees considerable long-term value and returns in Paragon mall.

As such, minority unit holders should carefully assess whether accepting the scheme consideration of 98 cents per unit, along with the dividend of 2.33 cents, aligns with their investment objectives.

“While the offeror currently holds 61.5 per cent of Paragon Reit, the outcome of the scheme will be determined solely by minority unit holders,” said Mr David Gerald, president and chief executive of Securities Investors Association (Singapore), or Sias. “On initial examination, the offer provides minority unit holders with an opportunity to realise their investment in Paragon Reit at a 7 per cent premium to the adjusted NAV. However, investors should weigh this against Paragon Reit’s long-term value potential, prevailing market conditions, and sector outlook.”

He added that unit holders should read the report of the independent financial adviser, which will be released at a later date, before making an informed decision.

OCBC Investment Research head Carmen Lee said Singapore’s retail Reits, particularly those in Orchard Road and the City Hall/Marina Centre areas, have been resilient and able to increase rental rates.

“The outlook has been buoyed by improving tourism numbers and receipts, as well as the normalisation of back-to-office arrangements,” she said, adding that it is “no surprise that most retail assets are enjoying close to full occupancy”.