The Straits Trading Company Limited Has Just Unlocked S$450 million In Value for Its Shareholders

In an announcement made last Friday, The Straits Trading Company Limited (SGX: S20) revealed that it will be selling off its Straits Trading Building to Sun Venture Group for $450 million.

This confirmation comes after a report emerged at end of August this year regarding a possible sale of the asset.

The transaction will bring about an estimated capital gain of S$39 million based on the property’s latest book value of S$405 million (as of 30 June 2014). Based on Straits Trading Building’s historical cost of S$70.6 million, the company is set to gain a tidy sum of S$373.3 million. Straits Trading will be recycling the funds from the sale into “potentially higher return real estate opportunities”.

Ms Chew Gek Khim, Executive Chairman of the firm, commented on the asset  sale, which helps unlock value for the company’s shareholders:

“The monetisation of the Straits Trading Building is a significant step to unlock value from our property assets and transform our real estate business into an engine of growth. In redeploying the proceeds, we will be able to pursue a wider spectrum of value-accretive real-estate opportunities and also further the development of our real estate ecosystem.”

The buyer, Sun Venture Group, is a real estate developer based in Singapore which currently owns and manages a number of commercial real estate. Some of the properties under its care include an office building at 50 Scotts Road, Westgate Tower, Paya Lebar Square, and four floors at Samsung Hub.

The sale is expected to be completed on 18 December 2014.

According to a 6 September 2014 report by local newswire The Straits Times, Straits Trading’s corporate headquarters, currently located on the 28th floor of the Straits Trading Building, will be leased back to the firm by Sun Venture until the end of 2016, with an option for renewal for another year.

Interestingly, ARA Asset Management Limited (SGX: D1R) may also be a beneficiary of this deal. Based on the strategic alliance ARA formed with Straits Trading back in October 2013, ARA will be managing the assets held under Straits Real Estate Pte. Ltd, which is a 90:10 joint venture owned by Straits Trading and Mr John Lim, Group Chief Executive Officer of ARA.

The capital received from the sale of Straits Trading Building could be pumped into Straits Real Estate by Straits Trading to acquire the “potentially higher return real estate opportunities”. If that occurs, it will be a boon for ARA as it will receive management fees from managing those assets.

Straits Trading, which closed at S$2.91 last Friday, is trading at 18 times its historical earnings at that price.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P owns shares in ARA Asset Management Limited.