KUALA LUMPUR (Aug 1): Paramount Corp Bhd’s wholly-owned subsidiary plans to dispose off its private and international schools, Sekolah Sri KDU (SSKDU) and Sri KDU International School, to newly-formed Alpha Real Investment Trust (REIT) for RM165 million.
The proposed disposal is in line with Paramount’s aim to pursue an asset light strategy and monetise its real estate assets through a sale-leaseback transaction.
Paramount said in a Bursa Malaysia filing today that Sri KDU Sdn Bhd (SKDU) entered into a master agreement and triple net lease with Alpha REIT to dispose off the properties in Pekan Baru, Sungai Buloh in Selangor.
Paramount said the sale-leaseback enables it to unlock capital resources from being tied up in long term assets by providing growth capital, while allowing it to focus on its core activities that would reward shareholders better.
“The proposed lease safeguards SKDU’s operations by allowing it to continue its business at its existing business premises without any disruption, while locking in rental rates over a 10-year period.
“It has options to extend the term of the lease for another 20 years, eliminating the risk of volatility in rental rates,” Paramount said.
The properties, with an an original cost of investment of RM102.54 million, have a net book value of RM87.03 million, based on SKDU's audited financial statements for the financial year ended Dec 31, 2016 (FY16).
The 48,363 sq metres land features three-storey and four-storey primary school buildings, a three-storey secondary school building, and six-storey international school building with a carpark and sports facilities complex. It has a 99-year land lease tenure up to Jan 25, 2104.
Paramount said the proceeds from the proposed sale, expected to be completed in the fourth quarter of 2017, would be used to cut back on leverage for the group (RM113 million), reward shareholders (RM31.8 million) and for working capital (RM19.7 million).
Meanwhile, Paramount’s sale-lease back with Alpha REIT marks the start of the first education REIT in the country.
In a statement, Alpha REIT chairman Datuk Stewart LaBrooy said it expects a second acquisition of an international school at RM140 million in a month.
The REIT’s initial portfolio will be RM305 million, including Paramount’s, he said, adding it was opportunity to form a unique boutique REIT with a focus on educational assets, after the trust found gaps in asset offerings in the market.
The REIT is unlisted for now, but it plans to list in three years, when it grows an asset under management (AUM) of RM2 billion to RM3 billion.
The trust met with Securities Commission Malaysia (SC) to seek their views on the setting up of an unlisted REIT, which acknowledged such REITs can serve a purpose.
This is because REIT managers can 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.
As such, the SC limited the offer of unlisted REITs to institutional investors, LaBrooy said, adding the Employees Provident Fund (EPF) has taken on the first tranche.
Paramount shares were not traded in the morning. It last closed at RM1.84, for a market capitalisation of RM780.7 million.