Sankei Real Estate Investment Corporation (2972) received a nonbinding letter of intent on 5 November from a private equity fund proposing to take the REIT private at a price at least 5% above the ¥125,000-per-unit tender offer already under way. The REIT disclosed the letter in a partial amendment to its earlier opinion statement on the City Index Fifth bid. (Earlier Tokyo Brief coverage)
What the fund proposes
The fund, which the REIT calls only "Company A" and describes as an experienced investor in Japan and abroad, says it is seriously considering a tender offer followed by a squeeze-out. It is working on a basic offer period of 20 business days, which could be adjusted to account for US securities rules. The price is described as preliminary, based on public information available when the letter was submitted. The fund says it will set a final price after due diligence on each property's profitability, leases, capital expenditure plans and borrowing terms.
The fund has not set a minimum number of units it would seek. It says it will decide that after looking at where tender agreements with major unitholders stand and after talks with its financing sources. It is also considering talks with major unitholders, including parties related to City Index Fifth, about agreements to tender.
Conditions before a binding bid
The fund plans to fund the deal with term-loan debt and equity from funds it runs. Due diligence and talks with financiers are scheduled for early to late November. The letter expects a legally binding final proposal as early as late November, but only after that work is complete and the fund's investment committee gives formal approval.
The REIT's history with the fund runs back to meetings on 16 and 29 October. The fund submitted a confidentiality pledge on 30 October and began due diligence on the REIT's properties and its financial, tax and legal affairs. The REIT's special committee discussed the fund's initial terms and timetable on 4 November.
Where the REIT stands
The REIT says its opinion on the City Index Fifth offer is unchanged as of 5 November from its 25 September statement. That statement backed the offer and left the decision to tender to unitholders. The REIT says it will examine whether the rival transaction would raise its value or serve unitholders' common interest, and whether it is feasible. It also said it published the proposal to keep unitholders informed.
The REIT had said in its earlier statement that City Index Fifth and its related parties intended to negotiate in good faith over tendering their units to a rival bidder, subject to the existing offer failing. The 5 November letter cites that stance as part of why the fund is considering a price above ¥125,000. The proposal is not a launched offer, and the notice gives no name for the fund.