The manager of CapitaLand Ascendas REIT (CLAR) has announced the divestment of Singapore industrial building KA Luminar Grand Place for a consideration of $35.38 million. Following an April 20 filing, the REIT’s trustee, HSBC Institutional Trust Services (Singapore), has entered into a sale and purchase agreement to sell KA Place to KA Place SPV 1.
The consideration sum represents an impressive 219% premium to CLAR’s purchase price of $11.1 million in March 2005 and a 55% premium to the property’s market valuation of $22.8 million as at Dec 31, 2022. KA Place at 159 Kampong Ampat is a seven-storey high-specification industrial building with a carpark on the second storey and a total gross floor area of 10,163 sq m. It also has a remaining land lease tenure of about 35 years.
According to CLAR’s manager, the proposed divestment is in line with their proactive asset management strategy to improve the quality of the REIT’s portfolio and optimise returns for unitholders. The manager said that they have decided that now is an opportune time to divest the property in order to redeploy the capital towards value-adding opportunities.
If the proposed divestment were to take place on Jan 1, 2022, it would have been expected to result in CLAR’s net property income (NPI) and distribution per unit (DPU) taking a decrease of $0.92 million and 0.005 Singapore cents, respectively. Net proceeds after divestment costs are expected to be $30.65 million.
The manager stated that these net proceeds may be recycled to fund committed investments, repay existing indebtedness, extend loans to subsidiaries, fund general corporate and working capital needs and/or make distributions to unitholders. They hope that if this is the route taken, the result will be a reduction of the REIT’s aggregate leverage from 36.3% to approximately 36.2%.
The proposed divestment should complete within 2Q2023, following which CLAR will own 229 properties comprising 96 properties in Singapore, 36 properties in Australia, 48 properties in the United States and 49 properties in the United Kingdom and Europe. In accordance with the trust deed dated Oct 9, 2002 constituting CLAR, the manager is also entitled to a divestment fee of 0.5% of the sale consideration of the property, which would be paid in cash.
Units in CapitaLand Ascendas REIT closed 3 cents higher, or 1.05% up, at $2.88 on April 20.
Overall, the proposed divestment of KA Place looks to be a great value-adding opportunity for the REIT. It is expected that by investing in this property, CLAR can reap substantial returns for unitholders and offset some of the existing debt. The manager’s confidence in this proposal is demonstrated through the 55% premium to the property’s market valuation and the 219% premium to the purchase price. Investors can continue to watch with expectation for more information.