Lim and Tan will own a collective 37.6% stake in Pavilion REIT upon listing, which is worth RM992.64 million based on a market capitalisation of RM2.64 billion at its initial public offering price of 88 sen.
In addition, the couple will also receive an estimated RM702.7 million in cash from the exercise, which involves the injection of properties into the REIT in return for cash and REIT units.
Pavilion REIT will establish an initial portfolio comprising two properties, Pavilion KL Mall and Pavilion Office Tower, which it will acquire from Urusharta Cemerlang Sdn Bhd (UCSB) and Capital Flagship Sdn Bhd (CFSB) for a total purchase consideration of RM3.32 billion.
The amount will be paid with RM1.378 billion in cash and RM1.944 billion in the form of consideration units in Pavilion REIT.
Lim and Tan, who own 51% of UCSB and CFSB, will receive RM702.7 million in cash from the sale of the properties to Pavilion REIT, as well as 37.6% of the REIT post listing. Qatar Holdings LLC, which holds the remaining 49% in UCSB and CFSB, will hold 36.1% of Pavilion REIT.
These calculations are based on the IPO offer price of 88 sen per unit, which is well below the REIT’s net assets per unit of RM1.18.
Pavillion REIT has a capital base of three billion units and total asset value of RM3.54 billion, according to its prospectus.
With these new funds in hand, certain observers note that it may be an ideal time to privatise Malton Bhd, in which Lim and Tan are controlling shareholders.
Malton’s undervalued position and relatively small market capitalisation may be one factor to support its privatisation.
Malton’s shares surged 8.5 sen or 13.8% to a four-month high of 70 sen yesterday. Trading volume grew over 10 times from 6.81 million shares on Monday to 76.8 million shares yesterday -- its highest level in over a decade. The property company has a market capitalisation of RM292.6 million.
Its five-year high was a mere 83 sen and the stock has consistently traded well below its book value, which stood at RM1.46 on June 30, 2011.
According to Bloomberg estimates, Malton is trading at a low price-earnings ratio (PER) of 2.95 times, compared with the industry average of 8.47 times.
Lim and Tan own 158.4 million shares or a 37.9% stake in Malton and are the only substantial shareholders in the company. The next biggest shareholders are Lee Kim Hooi with 3.47% equity interest and Teras Layar Sdn Bhd with 2.5%.
Buying out the remaining 62.1% stake would cost the couple an estimated RM181.7 million at yesterday’s closing price.
That is equivalent to just a quarter of the cash proceeds they will receive from the Pavilion REIT IPO.
Malton is a niche developer with pockets of land in Puchong, Petaling Jaya, Subang, Sungei Buloh and Ulu Klang in Selangor. It is best known as the developer of the Bukit Rimau township in Shah Alam.
As at June 30, 2011, Malton had RM960.4 million in total assets including RM219.8 million in land held for property development and RM76.09 million in investment properties.
It is in a net cash position, with RM224.42 million in gross cash and RM115.18 million in borrowings.
The company saw its 4QFY11 net profit quadruple to RM26.8 million from RM5.54 million in the previous year, as revenue for the quarter rose 95.2% to RM167.9 million from RM86.02 million.
It saw higher earnings from its property development division, which contributed 84% of total revenue, due to higher revenue recognition from the advanced stages of construction of ongoing projects and projects launched during the year.
Malton has seen a marked improvement in its financial performance in recent years.
Its net profit grew to RM72.6 million in FY11 ended June from a net loss of RM4.6 million in FY08, while revenue rose to RM462.3 million from RM394.8 million over the same period. Its earnings per share rose to 20.86 sen in FY11 from 6.33 sen the previous year.
Most recently, Malton said it had acquired a 56.05-acre piece of land in Gombak, Selangor, for RM105 million for a proposed residential development with an estimated gross development value of RM500 million.
Pavilion REIT, meanwhile, is aiming to raise RM659.2 million from its IPO, the bulk of which will go toward paying the purchase consideration for the acquisition of the two Pavilion buildings.
The company registered RM291 million in revenue last year and a net property income of RM203 million.
CEO Philip Ho said the company projects revenue of RM314 million and net property income of RM220 million from the current financial year, a growth of 7.9% and 8.3% respectively.
“We are very confident, and the forecast figures are achievable as tourist numbers have improved and the market is resilient,” said Ho.
The company targets to inject more retail properties into its portfolio by 2015.
It has right of first refusal (ROFR) to Fahrenheit88, a three-floor retail building fronting the Pavilion Mall.
“I believe Fahrenheit88 just opened its doors late last year. We are waiting for the mall to mature a little bit and then we will evaluate the situation, maybe in 18 to 24 months,” Ho told the media.
It also has ROFR to an extension of Pavilion Mall, involving 30,000 sq ft of retail space, and a six-storey retail mall to be developed in Subang.
Written by Sheikh Al-Zaquan, theedgemalaysia.com.my
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