Brokers Report: Sime Darby - Saizen REIT Back On Track

Retain neutral call with target price (TP) of RM7.15

Sime Darby (Sime) has entered into an implementation agreement with Japan Residential Asset Manager, the manager of Saizen REIT to acquire at least 25% of the enlarged Saizen REIT through a reverse takeover (RTO) after the expiry of framework agreement last week. There are some slight changes with regards to the shareholding and agreed prices compared to the previous agreement. The estimated market capitalization of Saizen REIT also revised up from RM900m to RM1.1bn. At this juncture, we maintain our Neutral call and TP (RM 7.15) pending the completion of recent proposed private placement and more guidance from management on the outlook of its plantation and industrial arms.

• Salient details of the RTO. Under the new agreement, Sime indirect wholly-owned subsidiaries, Hasting Deering (Aus) Limited and Austchrome will dispose 20 industrial properties located in Queensland and the Northern Territory, Australia to Saizen REIT for a total consideration of AUD355.8m (RM1.1bn). Subsequently, those properties will be master leased back to Sime’s Australian subsidiaries for a total period of 16.7 years. Sime indirect wholly-owned subsidiary, Sime Darby Property Singapore Limited (SDPSL) will be issued new units at SGD0.03604/unit (RM0.11) in Saizen REIT and promissory note as part of the reverse takeover of Saizen REIT by Sime, which in turn will own at least 25% stake in the Singapore-listed REIT. In addition, Japan Residential Assets manager will also sell 80% interest in the Saizen REIT manager to SDPSL.

• Background of Saizen REIT. Saizen REIT is a Singapore-based real estate investment trust (REIT) established since 2007 with the objective of investing into Japanese residential real estate assets. The company has a market capitalization of SGD34.7m (RM104m) as of yesterday. It used to manage 136 properties with a total value of SGD509m (RM1.5bn) over 14 Japanese ties. Following the completion of the disposal of Saizen REIT’s entire portfolio of real assets to Triangle TMK on 4 March 2016, Saizen REIT ceased to have any operating business and currently exists as a sh trust. Most of the proceeds from the disposal were paid out to unitholders via a special distribution. Its current cash level stands at SGD0.0987 per unit.

• More than RM1.1bn industrial assets injection. It is believed that the properties to be injected are the assets drawn from Sime’s industrial arm, which markets and distributes Caterpillar equipment across Australia. There are a total of 20 industrial properties located across Australia with a total book value of more than RM1.1bn.

• Timeline. The implementation agreement shall terminate if any of the conditions precedent is not fulfilled by 31 Jan 2017. KEY FINANCIAL SUMMARY Saizen REIT Back On Track Sime Darby (Sime) has entered into an implementation agreement with Japan Residential Asset Manager, the manager of Saizen REIT to acquire at least 25% of the enlarged Saizen REIT through a reverse takeover (RTO) after the expiry of framework agreement last week. There are some slight changes with regards to the shareholding and agreed prices compared to the previous agreement. The estimated market capitalization of Saizen REIT also revised up from RM900m to RM1.1bn. At this juncture, we maintain our Neutral call and TP pending the completion of recent proposed private placement and more guidance from management on the outlook of its plantation and industrial arms.

Source: PublicInvest Research - 11 Oct 2016