PETALING JAYA: Paramount Corp Bhd is disposing of its Sri KDU Campus for RM165 million, which will be injected into the country’s first syariah-compliant unlisted real estate investment trust (REIT), Alpha REIT.
The REIT has been established to invest in syariah-compliant income-producing real estate used substantially for education or education-related purposes and is limited to institutional investors.
Alpha REIT Managers Sdn Bhd (the REIT manager) is a wholly owned subsidiary of AREA EduREIT Sdn Bhd, the promoter of Alpha REIT.
According to Securities Commission Malaysia regulations, Alpha REIT has three years to reach the required scale of at least RM1 billion in assets under management.
Alpha REIT Managers CEO Jeyabalan Parasingam said it aims to grow Alpha REIT’s assets to RM2 billion to RM3 billion within three years as it prepares for a listing on the stock exchange. The REIT’s initial portfolio will be RM305 million.
He said it has been engaging education providers over the past few years with a view to acquire their current real estate portfolios, and to assist them in their future expansion plans.
The REIT manager expects a second acquisition of an international school at RM140 million within a month.
Alpha REIT Managers chairman Datuk Stewart LaBrooy said unlisted REITs are limited to institutional investors due to their illiquid nature, although current REITs guidelines allow for the establishment of unlisted REITs where the units may be offered to both retail and sophisticated investors.
“Unlisted REITs are often viewed as illiquid and offer limited transparency compared with their public listed counterparts. This can be an issue with retail investors who usually lack holding power and ability to demand information,” he said in a statement yesterday.
“Nevertheless, the SC acknowledged that unlisted REITs can serve a purpose, providing REIT managers with an avenue to scale up their portfolio of income-generating assets before going for a listing, particularly when the assets are being acquired from multiple vendors who are not sponsors of the REIT,” he added.
In a filing with Bursa Malaysia yesterday, Paramount said its wholly-owned subsidiary Sri KDU Sdn Bhd entered into a master agreement and triple net lease agreement with RHB Trustees Bhd, the trustee for Alpha REIT.
Under the agreements, Sri KDU will sell its Sri KDU Campus in Petaling Jaya and lease the property from the trustee for 10 years with options to extend the lease for two renewal terms of 10 years each.
“The proposed disposal is in line with the group’s plan to pursue an asset light strategy. Monetising the group’s real estate assets through this sale-leaseback transaction enables it to unlock capital resources from being tied up in long term assets, providing growth capital and allowing the group to focus on its core activities to ultimately better reward shareholders,” it said.
The deal will see it book a gain of RM72.9 million.
Meanwhile, the proposed lease safeguards Sri KDU’s operations, allowing it to continue its business at its existing business premises without any disruption while locking in rental rates over a long-term period, eliminating the risk of volatility in rental rates.
The campus comprises three parcels of leasehold land measuring 48,363 sq m on which there are four buildings currently occupied by Sekolah Sri KDU and Sri KDU International School.
The net book value of the Sri KDU Campus is RM87.03 million based on Sri KDU’s latest audited financial statements for the financial year ended Dec 31, 2016.
Of the RM165 million proceeds, Paramount plans to use RM113 million for cut back on leverage, RM31.8 million to reward its shareholders and RM19.7 million as working capital.
Its shares rose three sen to RM1.87 yesterday, with 137,700 traded.
Source: The Sun Daily