Property Perfect M&A, here’s the full story
There have been a few corporate deals in the past 2 weeks, True, Property Perfect and WHA come to mind, today we’ll talk about Property Perfect, only because a friend/reader came up with a potentially wonderful gameplan for the company (should they pull it off) and lets go through the steps here.
Note: This is a long post, get a cup of coffee ready
Here is the information in a nutshell with a full description after the break.
What happened?
On the 16th June 2014, Property Perfect (“PF”) announced that it plans to acquire Thai Property Plc (TPROP).
Deal Structure:
PF intends to make a tender offer of TPROP using share swaps or cash payment
Implications:
If PF successfully acquires all of TPROP’s shares it will have a controlling stake in Grande Asset Hotels and Property Plc (GRAND) because TPROP currently owns 40.62% of GRAND and is the controlling shareholder. Now if PF acquires TPROP, they will have to make a tender offer for all the outstanding shares of GRAND.
Who the hell is TPROP?
- TPROP owns 2 office buildings, namely One Pacific Place and Two Pacific Place where are both located near the BTS Nana station. Currently these 2 buildings generate about THB 245 mn with a GPM of 63.7% in 2013. The other major investment of TPROP is in GRAND.
- GRAND has two property components on their portfolio, first up are the hotels; 3 of them, The Westin Grande Sukhumvit, Sheraton Hua Hin Resort & Spa and Sheraton Hua Hin Pranburi, it has a fourth hotel on the way which is currently under construction, the Hyatt Regency. On the residential side it has The Trendy Condominium, Hua Hin Blue Lagoon and Hyde Sukhumvit (which is worth about THB 5.0 bn, 454 units and 90% sold).
When will the deal be done?
Its expected to be completed within the 4Q14 (Nov/Dec according to the company)
Ok now for the nitty gritty details of the above
PF’s Key Details:
Recent stock price: THB 1.30 / share
# of listed shares: 5.78mn
Mkt Cap: ~ THB 8 bn
2013 Revenue/Profit: THB 10.5 bn/THB 83 mn
Deal Structure:
- PF and TPROP’s major shareholders have come to an agreement that the deal will be done in the form of a share swap @ a ratio of 1 TPROP share for 0.50 PF shares, equal to an offering price of THB 0.57 / share. To do this PF will issue 1,597 mn new shares implying a dilution of ~21%.
- After the TPROP transaction is completed, PF will have to make a tender offer for all the shares of GRAND (because by law they will have a significant control stake in GRAND), this would mean that PF would issue another 3,162 mn shares to swap the portion of GRAND shares that TPROP does not currently own, it has been announced that it would be exchanged at a ratio of 1 share of GRAND for 1.149123 shares in PF (equal to about THB 1.31/share). This implies another ~23% dilution of PF’s existing shares.
So remind me what does PF gain again, and what does it cost?
They gain the following
2 office buildings
4 hotels
3 residential projects
At a cost of 4,579 mn new shares x current price of THB 1.30 = THB 6.18 bn
So now with all these new assets on hand what could happen?
Well they’ve announced a few things already
To launch a REIT:
- to sell the 2 hotels from Grande Asset,
- a Japanese Hotel that PF already owns,
- and 2 community malls, Metro West Town and Metro East Town (West is located on Kalaprapruek Road, East in Ladkrabang area and both are expected to be operational by 4Q14)
What are these things worth?
- Metro East and West are expected to be worth THB 1.8 bn, if PF sells at this and holds 15% of the REIT their after-tax gain of the sale will be THB 367 mn
- The 3 hotels are valued at THB 3.7 bn (why so low? Well GRAND’s ones are lease-holds)
- The office buildings could be worth THB 2.2 bn (rev 265 x 63% GPM; cap rate 7%)
What other things are PF planning to do?
- Sell 3 plots of land to City Realty (owned by Chali Sophonpanich & The Mall Group)
- Sell 110 rai plot on Chaeng Wattana to Sansiri Plc for THB 500 mn (they will still have 600 rai for remaining future developments)
- Sell another 160 rai of land on Krungthep Kreetha Road for THB 870 mn to 2 other listed developers.
- And PF plans to set up a property fund to sell Uniloft Chiang Mai for 500 million baht in the fourth quarter.
This all sounds so complicated why would PF bother?
- Well, if you look @ the numbers, their assets will increase to THB 40.22 bn (from THB 30.66 bn); and revenue could go to THB 22 bn and they’ll go up to the top 5 listed property developers in Thailand today.
- It costs them shares worth THB 6 bn to get assets worth, resi THB 5bn, 4 hotels about THB 5.5bn, offices THB 2.2bn = THB 12.7 bn, so thats not too bad, plus the ability to launch decently sized property funds/REITS, most likely @ great cap rates and thus a high exit price for PF
Should I buy this?
I’ve provided the basics, you do your own numbers 🙂
Anything else?
- Well apparently something may happen with KLAND (that would be another long post)
- TPROP can get out of REHABCO and trade in the market – PF makes a nice gain on the difference between BV and MV
- And major thanks to Shivek for piquing my interest in PF and essentially laying out the firm’s entire game plan 🙂