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KLSE Property Index ended the week of Dec 14-19,2009 in lacklustre mood with marginal gain of 0.1%.
Property investment companies were seen gaining ground while developers generally ended the week lower. IGB, KLCC Property and Krisassets gained 3.6%, 1.2% and 1.7% respectively. On notable major shareholders’ filings, Capital Income Builder Inc ceased to be major shareholder of SP Setia after trimming its holdings below the 5% threshold. Meanwhile, Employee Provident Fund (EPF) added 0.9m shares in S P Setia but sold 1.1m shares in Sunrise.
The highlight of the week was on Kuwait Finance House (KFH) formally pulling out from a RM920m deal to purchase half of Menara YNH from YNH Property. This news is not surprising to us as the deal has widely been expected to fall through following a long and protracted negotiation since the letter of offer was signed on 11 January 2008. Management has previously insisted that the deal is legally binding and in the event KFH fails to complete the sale, YNH will be able to sell the building to the next highest bidder and claim any shortfall in prices from KFH. However, KFH has since refuted that it has a legally binding agreement to buy the building. It clarified that a conditional letter of offer was executed between KFH and YNH but the sale and purchase agreement was not executed as the condition letter of offer which amongst others includes the necessary approvals from KFH's board of directors, shareholders and/or committee were not obtained.
With a slew of en bloc sales being aborted since the onset of the global financial crisis, we believe it is unlikely that YNH will be able to secure another buyer without having to lower its asking price substantially from the RM1,250 psf price previously agreed with KFH. If YNH insist on claiming for any shortfall in prices as damages from KFH, we believe a protracted legal suit may ensue. We believe prices above RM1,000 psf is difficult to achieve in the near term in view of large incoming supply of office space over the next 3 years. This is also supported by the more than 20% price reduction seen in the sale of Menara Citibank from
RM1,000 psf to RM828 psf following the termination of the acquisition by IOI Corp in November 2008. Imputing a similar discount will see the GDV for Menara YNH be slashed from RM1.8bn to RM1.4bn.
Nevertheless, the positive thing we can see from this turn of event is that the uncertainty of the sale of Menara YNH to KFH has finally been drawn to a close. Going forward, management will be at its own liberty to deal with the building i.e. whether to sell it to the next highest bidder or construct the building first in order to extract better valuation 2-3 years from now.
Other notable property news
* According to media report, Malton is set to clinch a RM700m job to upgrade some parts of the Pusat Bandar Damansara commercial and office complex owned by Johor Corp, the flagship investment arm of the Johor state government. Sources said Malton would upgrade some parts of the 28-year-old complex or demolish some ageing structures for new development. It would then sell back the completed property at higher prices to make a profit. Malton will pay RM500m in cash for the property, while the remaining RM200m will be paid in kind, meaning that once the property is completed, some of it will be handed back to JCorp in the form of commercial or office space. The project, which is expected to take five years to complete, will also require Malton to develop a fresh plot of land next to the complex belonging to Johor Corp.
* Permodalan Nasional Bhd (PNB) is reportedly seeking ways to “maximise” returns on its newly merged property unit, including a possible initial share sale. PNB, which manages more than RM100bn of assets, has completed the merger of its 3 property companies, Island & Peninsular Bhd which was bought for RM670.5m, Petaling Garden Bhd for RM477m in 2007 and Pelangi Bhd 2 years earlier, after taking them private.
* Mah Sing has secured an en bloc sale of a 7-storey retail and office space known as Apex Tower to a Taiwanese individual, Chen Ho-Yuen for RM63.1m cash or RM700 psf. Apex Tower, which has about a net floor area of 90,126 sq ft, formed part of Southgate commercial development located in Sungai Besi, which about 3km from KLCC. Apex Tower was sold at lower price as compared to the Corporate Tower, which was sold to Koperasi Permodalan Felda for RM876 psf in August 2009. We believe the discount is reasonable as the Corporate Tower has better frontage as it faces Jalan Sungai Besi and it was also sold with a guaranteed gross yield of 8% per annum.
* Asian Finance Bank Bhd (AFB) is in talks for en bloc sale of an office tower in Kuala Lumpur at an indicative price of RM200m, or RM1,000 psf, to foreign institutional investors. The 26-storey office tower, dubbed Crest Jalan Sultan Ismail, has garnered interest from sovereign wealth funds and Middle Eastern investors due to its location in the city centre where prime land is getting scarce, according to AFB CEO Datuk Mohamed Azahari Kamil. The Crest, located off Jalan Sultan Ismail in Kuala Lumpur, is a RM500m mixed development project which, in addition to the 200,000 sq ft office tower, also features a separate 44-storey residential tower. Crest, which is developed by SKN Land & Development Sdn Bhd, was launched back in 2007 and is projected to be completed in 2011.
