Paramount Corp to sell education arm’s assets to private REIT

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This article first appeared in The Edge Malaysia Weekly, on January 9-15, 2017.


PARAMOUNT Corp Bhd will be disposing of its education arm’s assets to a private real estate investment trust (REIT) as part of its asset-light strategy, sources say. The private REIT, which focuses mainly on education assets, is believed to be the first of its kind in Malaysia.

Sources say the private REIT has secured a local pension fund as its cornerstone investor.

The ­disposal of the company’s education arm’s assets is expected to be completed by the middle of the year.

The education segment is known for its homegrown brand of schools and colleges established over the last 30 years — Sri KDU Schools, KDU College in Petaling Jaya and KDU University College in Shah Alam and Penang. It is understood that Paramount will continue to manage the education business.

In an email reply to The Edge, Paramount group CEO Jeffrey Chew confirms that the company has found a suitable REIT to dispose of its education assets to, but did not elaborate.

The private REIT is said to have edged out two listed REITs, one of which is AmanahRaya REIT.

“Both listed REITs offered a good price for the [education] assets, but Paramount chose the private REIT in the end. It could partly be due to the strong cornerstone investor the private REIT has secured,” says a source.

Among the listed REITs in Malaysia, AmanahRaya REIT has the highest exposure to education properties, said MIDF Research in a research note last June.

AmanahRaya REIT’s education property portfolio includes SEGi University and HELP University, which is the second biggest rental income contributor (30%) to the REIT, added MIDF Research note.

In Paramount’s 2015 annual report, two properties under its education arm were listed among the group’s top 10 properties, with a combined net book value (NBV) of RM300.17 million as at Dec 31, 2015.

KDU University College campus in Glenmarie has a NBV of RM212.16 million, while Sekolah Sri KDU and Sri KDU International Schools in Kota Damansara have a total NBV of RM88.01 million.

The education segment contributes about 30% to the group’s revenue and profit before tax, while the major portion of revenue and profit is still derived from its property arm.

On a group basis, revenue and net profit declined 8.8% and 28.1% respectively during the third quarter ended Sept 30, 2016, dragged down by the lower contribution from its property division.

Nevertheless, the education segment posted revenue growth of 2.8% to RM37.3 million in the same quarter from RM36.3 million a year ago. The company attributed the increase to the higher revenue recorded by KDU University College and KDU College.

But profit before tax declined to RM4.6 million from RM5.5 million previously due to lower contributions from KDU Penang University College as a result of higher operating costs after its conversion to university college status last October.

During a recent interview with The Edge Financial Daily, Chew was quoted as saying the K12 segment, consisting of primary and secondary schools, is doing “extremely well”. He adds that Sri KDU is reaching full capacity of more than 3,000 students in both national and international streams.

He says Paramount wants to be more aggressive in the education sector, particularly in the K12 segment.

A quick check online shows that the fees for Sekolah Sri KDU, which uses the national syllabus for its primary and secondary students, are from RM20,000 to RM24,000 per annum. Sri KDU International School’s yearly fees are higher at RM35,000 to RM50,000.

Given that the schools are close to hitting their maximum capacity, Paramount is planning to build a new international school in the Klang Valley this year to cater for 1,500 students. It aims to complete the project by 2019.

Meanwhile, Paramount’s share price has shaved off about 12% over one year. It closed at RM1.38 last Wednesday. The company trades at a price-earnings ratio of 9.85 times based on its share price of RM1.39. Its 12-month yield amounts to 5.98%.