Why CIT's Lam Soon sell-off was a good move

Divestment proceeds to repay debt.

According to CIMB, Cambridge Industrial Trust (CIT) has announced the divestment of its entire 69.4% strata stake in Lam Soon Industrial Building for S$140.8m to entities related to Enviro-Hub Holdings and BS Capital. CIMB noted that the sale should still be a positive given the greater certainty of value-unlocking in its entirety and accretion from the use of divestment proceeds.

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The sale price represents a premium of about S$30.8m or 28% above the book value of S$110m. CIT intends to employ the proceeds towards debt repayment, acquisitions and/or developments. Subject to the fulfilment of conditions, completion should take place within 12 weeks from the date of exercise of the purchase option.

The asset’s NPI yield on book value is about 2.9%, implying a 2.3% yield on the divestment price. The use of proceeds for debt repayment or investments could thus result in accretion of 2-16%, depending on whether proceeds are used to fully repay loans or for acquisitions/developments.

Accretion from the use of divestment proceeds is a positive although investors who had been looking forward to the sale as a residential site are likely to be disappointed.

The selling price of S$475psf appears to be at the lower end of the S$431-638psf fetched by strata transactions at Hillview Avenue over the past two years, although we highlight the piece-meal nature of these vs. CIT’s sale of its entire stake.

While there appears to be room for an even better selling price, greater certainty of value-unlocking from the asset in its entirety and accretion from the use of divestment proceeds should nonetheless be a positive.