KUALA LUMPUR: Paramount Corp Bhd, which is set to become a major full-spectrum education services provider with its acquisition of a 66% stake in the REAL Education Group, plans to spin off one of its education assets into a private real estate investment trust (REIT).

The group hopes to pocket as much as RM200 million from the disposal of the asset, said Paramount chief executive officer Jeffrey Chew Sun Teong.

“In both REAL and Sri KDU [private and international schools] we own all our assets, whereas [in the case of] some of the other education players, whether it is tertiary or K-12, they actually have been selling their assets and then lease them back, using an asset-light strategy,” he told a press conference.

“That is the reason why we are looking at one of our assets at this stage, and if we do conclude that, then that would bring in some of the disposal proceeds, which we can actually use them for expansion of our business ambition together with REAL Education, or even pare down some of the debt,” he added.

Chew said the asset that Paramount is considering spinning off into a REIT is its Kota Damansara property that houses the Sri KDU schools.

“Roughly our valuation for that property is about RM150 million to RM200 million. It is a 3,200-student [campus] on a 12-acre (4.86ha) land, very good location … we are looking at finalising all these numbers; it will be more than RM150 million,” he said.

Earlier, Chew announced that Paramount is acquiring the 66% stake in REAL Education for RM183 million cash from Character First Sdn Bhd, which is owned by REAL Education founders Sim Quan Seng (38.7%), Aziz Bahaman (31.4%), Ee Ching Wah (24.2%) and Kee Keok Kay (5.7%).

Character First, said Chew, will retain the remaining 34% shareholding in REAL Education.

He said the REAL Education acquisition will be funded through internally generated funds and bank borrowings. Credit Suisse is acting as the exclusive financial adviser to Paramount for the deal.

REAL Education was established in 1985 and has presence in the kindergarten, primary and secondary segments. It has three key brands — REAL Kids, REAL Schools and Cambridge English for Life — with a total of 18,000 students across 30 REAL Kids centres, six international and private schools in three campuses, and 60 Cambridge centres.

Chew said the group expects to complete the acquisition in the next three months and emerge as one of the country’s largest full-spectrum education services providers.

The acquisition adds on the kindergarten portfolio to its existing offerings of national and international curriculum in primary, secondary, pre-university and undergraduate programmes.

Chew said REAL Education’s profit after tax last year was about RM15 million.

“With a 66% stake, equivalent to about RM10 million, that would increase our education portion in our business quite significantly,” he added.

Chew also said the acquisition will raise Paramount’s total student population to 6,581 in the K-12 sector, giving the group an 8% market share. Currently, Paramount controls less than 2% of this segment.

“The price values REAL Education at about RM277 million, representing about over 19 times PER (price-earnings ratio). Of course we also used discounted cash flow. Overall, we are comfortable with the valuation,” he said, adding that there is no decision to alter REAL Education’s branding.

Paramount’s education business contributed about 30% of its revenue and profit before tax while the remaining came from property development.

This year, Chew said the group plans to launch more property development projects than in 2016.

“We are targeting to launch about RM600 million worth of projects this year. We managed to hit RM400 million sales last year, despite the softer market, and we expect to do better this year,” he said.

“We think that property development would be the same, if not better than 2016 … we are quite positive about our property segment,” he added.

Paramount shares have been temporarily suspended since yesterday morning pending the acquisition announcement.

The counter had been rising since touching RM1.38 on Jan 5, before settling at RM1.51 on Tuesday, gaining 9.42% during the period.