[SINGAPORE] CapitaLand Ascott Trust (Clas) is proposing to divest Citadines Central Shinjuku Tokyo for 25 billion yen (S$222.7 million), with the transaction expected to be completed by the fourth quarter of 2025.
On Thursday (July 31), its managers said the proposed divestment price represents a premium of around 100 per cent over the property’s book value and approximately 40.4 per cent above the average of two independent valuations. The exit earnings before interest, taxes, depreciation and amortisation (Ebitda) yield stands at 3.2 per cent.
The buyer is an unrelated, third-party purchaser, ML Estate, which is a wholly-owned subsidiary of Japanese company Mizuho Leasing.
The sale is expected to unlock an estimated net gain after tax of S$50.8 million and generate net proceeds of about S$187.4 million.
Serena Teo, the chief executive officer of the manager, said: “After evaluating the property’s age, substantial capital expenditure required and the potential income loss during renovation, we are proposing to divest Citadines Central Shinjuku Tokyo at this opportune time.”
She added that the divestment will enhance the trust’s financial flexibility to further optimise its portfolio.
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Located in the Japanese capital’s key entertainment district Kabukicho, Citadines Central Shinjuku Tokyo is a 206-unit property in an area with retail, dining and lifestyle options.
The asset, which was built in 2008, was acquired by Clas in 2014 for 8 billion yen. As of last year, the book value had risen to 12.5 billion yen.
Teo said: “To be able to unlock the value, at this stage, at 25 billion yen from the original acquisition of 8 billion yen, represents the value that the CapitaLand and Ascott Group has been able to add to this asset.”
She said that divesting the property at this juncture made financial sense for the manager.
“Instead of putting in the huge capital expenditure and letting it go through a period of property closure, we’ve decided to unlock the value, take the money out and invest in other uses within the trust.”
Based on Clas’ own assessment, the capital expenditure required to upgrade the asset would be between S$40 million and S$50 million.
Although the proposed divestment value is on the higher end, it is still within the range of transaction prices for properties of similar scale and quality in Tokyo, said Teo.
She noted that the property is old, but that the buyer may have viewed it as a “prime candidate” for value-add opportunities.
Following the divestment, Clas plans to redeploy capital towards more efficient uses, such as repaying higher-interest debt, funding asset enhancement initiatives (AEIs), reinvesting in higher-yielding properties, and for general corporate purposes.
The transaction also improves Clas’ financial flexibility to distribute divestment gains, or to cushion the short-term impact of AEIs and broader economic headwinds, said its managers.
As the divestment is an interested-party transaction, security holders will vote on the proposed divestment at an extraordinary general meeting in September.
Assuming the net proceeds are used to repay debt, and after factoring in the loss of income from the sale, distribution per stapled security (DPS) is expected to rise by 1 per cent on a pro forma basis for FY2024.
Assuming an accretion of 1 per cent following the divestment, the proceeds will be used to, firstly, pare down the property’s existing debt of 5 billion yen. The remaining proceeds will be used to reduce some of the more expensive debt that Clas has in sterling pounds. Taken together, the blended interest rate on these debts is at 4.6 per cent.
Clas’ aggregate leverage is projected to improve from 39.6 per cent as at Jun 30 to 37.8 per cent; its debt headroom is expected to rise from about S$1.8 billion to S$2 billion on a pro forma basis.
Japan as a key market
Teo said that following the divestment, Japan is expected to contribute to around 16 per cent of Clas’ gross profit. The trust will retain 29 assets in the country, including a serviced residence, four hotels, 23 rental housing properties and one student accommodation asset.
She noted that Japan remains a key market for Clas, with the country’s accelerating urban migration and limited supply of prime housing supporting the trust’s rental housing portfolio and reinforcing its resilient income base.
“We continue to seek more yield-accretive investment opportunities in the country to deliver long-term value to our stapled security holders,” Teo added.
In the first half of 2025, Clas’ rental housing assets in Japan maintained stable income, achieving an average occupancy rate of over 95 per cent. International travel demand also remained strong, boosting the performance of its hospitality assets such as its serviced residences and hotels.
Japan was among Clas’ top-performing markets during the period, with both revenue and gross profit rising 12 per cent year on year. On a same-store basis, revenue and gross profit grew 7 per cent and 9 per cent, respectively.
The trust’s managers said it has a “strong track record of divesting assets at a premium to book value and redeploying capital towards more optimal uses”.
Since 2024, the trust has completed nine divestments, totalling over S$500 million at premiums of up to 55 per cent to book value under its portfolio reconstitution strategy.
Over the same period, Clas invested approximately S$530 million in five yield-accretive acquisitions. It has also channelled divestment proceeds into AEIs to boost asset value and profitability.
On Tuesday, the manager of Clas posted a 1 per cent drop in distribution per stapled security (DPS) to S$0.0253 for its first half ended Jun 30, from S$0.0255 in the previous corresponding period.
Revenue for the first half inched up 3 per cent to S$398.5 million from S$386.4 million in the year-ago period. Profit rose 6 per cent, to S$182.5 million from S$172.9 million previously.
The counter closed up 0.55 per cent or S$0.005 at S$0.905 on Thursday.
AloJapan.com