Yesterday it was announced that Paragon REIT would be taken private, subjected to approval by minority unitholders in an extraordinary general meeting (EGM) to be held sometime in April 2025. The offer price is SGD 0.98 per unit, which is around 1.07 times of the REIT’s net asset value (NAV), and along with it, (possibly) the final distribution of SGD 0.0233 per unit.
While there were four reasons stated in the announcement (page 5 of the media/analyst briefing slides, link under Reference) for the privatisation, I see two main rationales, namely:
- The low trading liquidity and analyst coverage had somewhat stunted the growth of the REIT, and
- Privatisation would take the risks off from unitholders of an upcoming asset enhancement initiative of Paragon shopping mall, considered the crown jewel of the entire REIT portfolio (at 72% of its value), for it remain competitive.
The Bedokian’s Take
Our Bedokian Portfolio has held Paragon REIT since it listed (back then as SPH REIT) in July 2013, and we had further incorporated the REIT in our CPF portfolio sometime before the onset of COVID19. Over the years we had gone in at different tranches, at one point as high as SGD 1.07. Currently the average prices of the REIT in the Bedokian Portfolio and CPF portfolio stood at SGD 1.02 and SGD 0.88, respectively.
I had espoused Paragon REIT several times in my blogposts, due to its low gearing and the strength of location of its two local malls (Paragon and Clementi Mall), which is a good mix as one is located within the Orchard shopping belt and the other in the heartlands, thus having a sort of retail diversification.
Though I have a penchant of investing in smaller retail REITs due to them being niche and with growth potential (like our other investment in Lendlease Global Commercial Trust), the main minus point is them being dwarfed by the larger REITs, especially in recent years where there were a couple of major mergers, namely the Capitaland and Mapletree family of REITs. Hence this privatisation should come as not much of a surprise.
For the offer, I opined that it would likely go through, given the REIT traded near or at its NAV for the past five years, and the additional 7% would provide an incentive for those who entered during this period. For us, we would accept whatever the outcome of the EGM is.
Until then, and depending on the result of the EGM, it has been a great journey with Paragon REIT.
Disclosure
The Bedokian is vested in Paragon REIT and Lendlease Global Commercial Trust.
Reference
Media/Analyst Briefing. Proposed Privatisation of Paragon REIT. 11 Feb 2025. https://paragonreit.listedcompany.com/newsroom/20250211_073825_SK6U_035NUIV7JXSG06FM.3.pdf
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