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LONG-TIME unitholders of Al-Hadharah Boustead REIT (Boustead REIT) could have let out a sigh of relief when Boustead Plantations Bhd tabled a RM664.8 million offer to privatise the country’s only plantation real estate investment trust. At RM2.10 per unit, the cash remuneration was 27% higher than the average market price.

The privatisation exercise, advised by Affin Hwang Investment Bank, scored three firsts. While Boustead REIT was the first plantation-based REIT on Bursa Malaysia, it was also the first REIT to be taken private. The method of privatisation, dubbed selective unit redemption (SUR), set a precedent to privatise REITs.

SUR is similar to selective capital reduction, where the offeror would acquire units in a REIT from other unitholders using the REIT’s funds. Eventually, those units will be cancelled and the offeror will wholly own the REIT.

According to Affin Hwang Investment Bank, there were no regulatory guidelines or precedents available for SUR. Therefore, the investment bank has had to work closely with the regulators to establish the transactional structure before the privatisation exercise was launched.

The pluses of using SUR, as the investment bank says, included a lower approval threshold at 75% against the 90% level required by the general offer method. Meanwhile, Boustead Plantations is not required to transfer Boustead REIT’s land titles to the former, thus saving cost in terms of stamp duty.

Boustead Plantations, which owned 53.58% of Boustead REIT, offered to use Boustead REIT’s funds to pay for the remaining 290.99 million units or 46.42% of the REIT units not owned by Boustead Plantations. The REIT was then converted to a private property trust.

However, Boustead Plantations could only resort to getting the support of Boustead REIT’s minority unitholders for the privatisation proposal. Apart from Boustead Plantations, the REIT’s other substantial unitholder was Lembaga Tabung Angkatan Tentera (LTAT) with a 12.7% stake, which is the ultimate shareholder of the two. Being a related party, LTAT was prohibited from voting at Boustead REIT’s extraordinary general meeting.

“Hence, the pricing of the privatisation offer had to be sufficiently attractive to the minority unitholders of Boustead REIT without being prejudicial to the interest of the minority shareholders of Boustead Holdings Bhd,” says Affin Hwang Investment Bank.

The offer price was set at RM2.10 per unit, where RM1.94 was for the unit’s redemption and 16 sen for a special dividend. This was at a 4.86% premium to Boustead REIT’s revised net asset value (RNAV) of RM1.85 per unit for the financial year ended Dec 31, 2012 (FY2012).

When adding the special dividend, the premium of the offer price to the RNAV stood at 13.51%, which independent adviser Hong Leong Investment Bank (HLIB) said was “above the fair valuation range”.

For comparison, HLIB said the RM2.10 cash offer was at most 27.21% higher than the unit’s price as at the last trading date prior to the announcement on July 13, 2013, and the volume weighted average prices of Boustead REIT for five days, one month, three months, six months, one year and three years.

Furthermore, Boustead REIT was also thinly traded. In a one-year span up to June 2013, the turnover averaged at 109,703 units, or 0.09% of its free float. For unitholders who had been invested in Boustead REIT since the units were floated on Feb 8, 2007, the RM2.10 offer was more than double the REIT’s IPO price of 99 sen.

The investors would have also reaped more in dividends, where the payouts ranged from 9 sen to 12 sen per unit in the seven years Boustead REIT was listed. The special dividend of 16 sen per unit put a high note to the REIT’s swansong as it was at least 33.33% higher than the annual dividend per unit that had been paid out.

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This article first appeared in The Edge Malaysia Weekly, on 22 - 28 December 2014.

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