Ascott Residence Trust has divested its 100%-owned subsidiary, Somerset Xu Hui Shanghai, for a consideration of RMB1.05 billion ($215.6 million) to an unrelated third-party on Feb 9.
The consideration, which was arrived at on a willing buyer willing seller basis, valued the property value at 171% above its book value.
After providing for related fees related to the transaction, ART expects to gain net proceeds of RMB536.6 million. This may be used to pare down the trust’s debts, fund potential acquisitions, or other general corporate purposes.
The estimated gain and sale proceeds are subject to movement in exchange rates and adjustment to final accounts.
Of the consideration, about 3% of the amount of the property value has been received. Another 27% of the amount of the property value will be received within 10 days of the signing of the sale and purchase agreement.
The balance of 70% will be paid upon completion.
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The entire sale amount will be paid in cash.
Following the divestment, the existing management agreement with the manager of the property, Ascott Property Management (Shanghai), a wholly-owned subsidiary of The Ascott Limited, will be terminated.
A termination compensation will be paid to the manager.
Completion is expected to take place in 2Q2021.
On a pro forma basis, distributable income would have been $91.3 million after the sale in FY2020, down from $94.2 million.
Distribution per stapled security (DPS) would have stood at 2.94 cents after the sale, from 3.03 cents.
Distribution yield would have lowered to 2.7% from 2.8% in the FY2020 should the sale have taken place during the FY.
Consolidated net asset value (NAV) would have been $3.7 million after the sale compared to $3.6 million, while NAV per stapled security would have been $1.18, from $1.15.
ART says the reason behind the divestment is due to the property’s limited upside operational growth prospects and capital appreciation due to the ongoing Covid-19 situation and the strict government regulations to cool the property market in China.
As such, the sale presents an opportunity to unlock the underlying value of the property and redeploy the proceeds in higher-yielding assets to enhance the returns of ART’s portfolio, according to ART's manager.
Units in ART closed flat at $1 on Feb 8.
