On 6 Feb 2014, Second Properties Ltd has entered into an option agreement to dispose all their properties at a price of $175,376,412, which is somewhat a premium to the total market value of $134,773,500.
Rationale
The proposed disposal is expected to unlock equity value tied up in the real estate for a number of years and the company will use the proceeds for:
1.) 39% of the proceeds will be used to repay all the debts, bringing the gearing to 0.
2.) 6% of the proceeds will be used to distribute dividends to shareholders.
3.) 55% of the proceeds will be used to redeploy into business operations which can generate a higher return.
Thoughts
I thought it's a pretty good deal.
Based on the market value alone they probably would have made significant profits from it. Now with a premium proceeds, they have gained easily another $40 Million profits.
For investors, based on the 6% proceeds out of $175,376,412 and outstanding shares of 677,210,218, each share will be awarded $0.0155 which translates to about $15.5 per lot. It's pretty good I must say for investors. I hope I am calculating this correctly.
Based on this move, it does seem that the Group is feeling some heat on their properties and have decide to lock in their profits.
A friend of mine who are invested in the shares were quite disappointed that the company has decided to part with their golden nest. By giving up their properties business, revenue is expected to fall almost 28% and investors should expect quite a significant drop in their FY dividends.
Whether this move will be good for investors in the long run it is a guess to anyone. For Salleh the CEO, he certainly feels like a good deal for the company.
