THE buyout offer for property group Roxy-Pacific Holdings is " not fair but reasonable" , the independent financial adviser (IFA) in the deal said in a letter dated Wednesday (Jan 19).

 

On the advice of the IFA, the independent directors recommended that shareholders accept the offer of S$0.485 in cash for each share, which values the company at S$630.5 million.

 

Roxy-Pacific chairman and chief executive Teo Hong Lim launched the privatisation bid in September 2021 with 10 others through bid vehicle TKL & Family, citing a " challenging macro and operating environment" and other factors.

 

In gauging the fairness of the offer, IFA ZICO Capital noted the price-to-revalued net asset value (P/RNAV) of 0.64 time implied by the offer price was below the average and median ratios of precedent privatisation transactions since 2019.

 

Precedent deals that were taken into account by the IFA included United Engineers, Breadtalk Group, Perennial Real Estate Holdings, Fragrance Group and Singhaiyi Group.

 

Still, the IFA considered that the implied P/RNAV was higher than the average but below the median P/RNAV of the precedent real estate privatisation transactions.

 

Meanwhile, the implied P/RNAV was higher than the average and median P/NAV of selected comparable listed companies, which were considered after discussion with the management, said the IFA - such as Ho Bee Land, Oxley Holdings, Chip Eng Seng and Hiap Hoe.

 

In determining the reasonableness of the offer, the IFA also noted that Roxy-Pacific had not declared dividends in FY2020 and in H1 2021, among other factors.

 

Given that the offeror already has irrevocable undertakings for about 77 per cent of the shares - from shareholders Kian Lam Investment and Sen Lee Development, as well as from most of the members of the consortium that is making the offer - the IFA added that " it is highly unlikely that there will be any competing offer from a third party" for the company.

 

" Having considered carefully the information available to us as at the latest practicable date, and based on our analyses, we are of the opinion that the financial terms of the offer are, on balance, not fair but reasonable," the IFA wrote in the letter released to shareholders.

 

The independent directors said in the resulting circular that they agree with the IFA' s assessment of the offer, as well as its advice and recommendation.

 

But shareholders were told that the IFA' s advice to the independent directors on the offer should not be relied upon by any shareholder as the sole basis for whether to accept or reject the offer.

 

The voluntary conditional general offer for Roxy-Pacific is set to close on Feb 3 at 5.30 pm, or any later date that the offeror may announce.

There will be 2 residential blocks of 5 and 8 storeys each, and its 137 units will have 1 to 4-bedroom apartments

 

MAINBOARD-LISTED Roxy-Pacific Holdings will be launching its freehold condominium Mori on Dec 4, with an expected average price of S$1,900 per square foot (psf).

 

Inspired by the Japanese wabi-sabi concept of finding beauty in simplicity, Mori comprises 2 residential blocks of 5 and 8 storeys each, an outdoor onsen, several pools and lounges, and an open-air gymnasium. Its 137 units include 1 to 4-bedroom apartments, ranging from 484 square feet (sq ft) to 1,259 sq ft.

 

According to Teo Hong Lim, executive chairman of Roxy-Pacific, prices will start from S$1,680 psf. " However, we are in the midst of adjusting the price list as we intend to achieve an average psf price in the range of S$1,900," Teo said.

 

The condominium sits on 37,131 square feet (sq ft) of land along Jalan Molek and Guillemard Road in District 14. It is 500 metres away from Dakota MRT station and 1 kilometre away from Aljunied MRT station.

 

Teo said the land was bought in November last year for S$93 million as he felt that the market was stirring.

 

He said that at the start of 2020 when Covid-19 cases grew in Singapore, he was concerned about how the market would turn out and " tightened Mori' s belt" in response. However, during the second half of the year he saw that Roxy-Pacific' s existing project, View at Kismis, was experiencing " continued sales momentum" .

 

Teo added that it typically takes 1 year from the initial acquisition date to launch a project. " So we can' t wait until our projects are substantially sold before we start going to the market to replenish our land bank. Ideally we want to start looking before other developers start moving, we always need that first-mover advantage," he said.

 

According to Teo, he snapped up the property which would be developed into Mori because of its attractive price, location and size.

 

Mori is due to achieve its Temporary Occupation Permit in 2024, he said.

 

While demand is growing, Teo added that the stock of unsold apartments in the " mass market" , which he defines as projects priced between S$1,000 and S$1,999, is also diminishing quickly.

 

In February this year, Roxy-Pacific bought a 14,300 sq ft site at Institution Hill for S$56.6 million as part of a joint venture with Macly Group and LWH Holdings. The property is currently in its conceptualisation stage, to be developed into a boutique project comprising about 70 units. It is likely to launch in mid-2022, Teo said.

 

However, given increasing construction and labour costs, Teo added that developers might need to raise their breakeven price.

 

He said: " We hope to still be able to give good value to buyers. Because launch price is not purely based on breakeven, it is also based on what the buyers can accept."

 

" I think we are rather cautious right now. If you buy a plot of land at a price that is too expensive and still add the construction costs, when the market starts to come down, the buyers might not accept your product."

 

On whether market sentiments would ease any time soon, Teo noted that the market is " very difficult to predict" .

 

He said: " The current market seems to be quite flushed with liquidity, it is doing very well. Volume is good, prices are inching up. The last few land sales by bigger developers have been quite active, so I think the market should be stable for the next 1 or 2 years."

 

" Of course everything is always changing," Teo added.

 

He said that Roxy-Pacific continues to be on the lookout for " attractive and unique" sites.

 

In the meantime, Roxy-Pacific is also looking at privatisation. The company announced in September that it has received a pre-conditional voluntary general offer from TKL & Family for all the issued ordinary shares in the company. The offeror is a consortium formed by 11 individuals, including Teo and his family members.

 

According to Teo, the decision was made after considering that Roxy-Pacific' s management team " might need some flexibility" in response to the challenges brought about by the Covid-19 pandemic. " It' s also an opportunity for shareholders to exit their investment," he added.

 

The family currently owns about 76 per cent of Roxy-Pacific. Should the privatisation go through, Teo will own a proposed 32.5 per cent.

 

Roxy-Pacific' s offer price is S$0.485 per share, which represents a 19.8 per cent premium over the stock' s closing price on Sept 14, 2021 - the last full trading day of the company prior to the announcement.

 

On when the privatisation will conclude, Teo said that the company is currently waiting for approval from the New Zealand government, which is required because Roxy-Pacific has two properties in the island country.

 

" Then after that, we will send out an offer document officially. We hope that shareholders will look at it favourably and that we can receive a 90 per cent acceptance rate."

 

A group of investors led by Teo Hong Lim, chairman and CEO of Roxy-Pacific Holdings, is offering to buy out other shareholders at 48.5 cents.

 

The consortium of 11 investors already control or has secured in between them 76.44% of the shares. 

 

They intend to privatise the company, which is valued at $623.4 million based on the 48.5 cents offer price.

 

The offer price, at 19.8% premium over the last traded price on Sept 14, is final and will not be revised.

 

As at June 30, the company&rsquo s net asset value was 37.33 cents per share, up from 36.97 cents as at Dec 30 2020.

 

The offer is an &ldquo attractive opportunity&rdquo for other shareholders to exit, given how illiquid Roxy Pacific shares are, as well as the &ldquo challenging macro and operating environment&rdquo faced by the company amidst the Covid-19 pandemic. 

 

The offeror also cited &ldquo prolonged challenges&rdquo in the construction of development projects due to supply chain woes, labour crunch and higher material costs. 

 

&ldquo The company may also face increasing risks of delays in project completion and potential penalties from late delivery exacerbated by the increasing risk of default by construction contractors,&rdquo the offeror adds.

 

The pandemic continues to &ldquo hinder&rdquo Roxy-Pacific&rsquo s hotel business. 

 

&ldquo Continued weakness is expected in the hospitality industry as business travel and retail tourism remain lacklustre due to the surge in COVID-19 cases accelerated by the Delta variant.&rdquo

 

By privatising the company, the offeror will have more flexibility to &ldquo manage the business of the company and optimise the use of the company&rsquo s management and resources during this time of economic uncertainty.&rdquo

 

For 1HFY2021 ended June 30, the company reported earnings of $5.87 million, up 110% y-o-y. Revenue in the same period was up 20% y-o-y to $$141.2 million.