Tower REIT announces sale of Menara ING

I have been a unit-holder of Tower REIT, a small Malaysian office REIT, for a while. This morning I was pleasantly surprised to see the stock sharply up (+4.13%), after weeks of decline. Turns out there’s big news.

What’s happening?

Tower REIT owns (only) 3 office towers and is selling one of them, Menara ING. The sale is done significantly above the Net book value: about MYR 132 Million vs 101 as of the end of last year. As is usual with REITs selling assets, the disposal is said to enable the trust to “repay bank borrowings” and to “pursue acquisition opportunities”.

What I think

This looks like a smart move on paper. The NAV will increase immediately as a result (by 5% per unit according to the press release) ; and this feels even more positive given that the trust is currently trading at a significant discount. The big question is of course how that money can be put to good use: the trust already had less than 20% leverage before the sale, so with the extra cash one or two acquisitions are possible, hopefully some accretive ones.

The issue however is that until some acquisition is made, the trust will be going with one third of its portfolio gone. This is seriously going to hurt the income. I had invested in this trust as I felt it offered a good yield with a safe, simple and boring profile. It’s turning out to be less boring than expected.

Disclosure: long Tower REIT