OCR Land puts joint-venture assets up for sale

This article first appeared in The Edge Malaysia Weekly, on October 30, 2017 - November 05, 2017.

Menara PMI’s location makes it ideal for conversion into a hospitality product, say industry observers

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THE owners of OCR Land Holdings Sdn Bhd are selling five of its assets, comprising an office building, residential parcels and industrial land, located within the Klang Valley and Johor as part of measures to streamline its business. These assets, if sold, may fetch as much as RM200 million, sources say.

The Edge understands that none of the assets earmarked for sale is linked to OCR Land’s listed entity O&C Resources Bhd (formerly known as Takaso Resources Bhd). Neither will these assets be injected into the latter. OCR Land had emerged as a substantial shareholder in the condom and baby product manufacturer in 2015.

“The exercise is part of the private group’s business streamlining,” a source says, adding that OCR Land wants to focus on the listed entity, which has jobs in hand that will keep it busy for the next five years.

“They want to strengthen O&C Resources and not overstretch it,” the source says when asked why the assets were not being injected into or sold to the listed entity.

O&C Resources is currently also involved in property and construction. It posted its first profit in years in the financial year ended July 31, 2017. Since the five assets up for sale are held jointly with other parties, OCR Land wants the latter to realise the value of the assets sooner, the source says.

OCR Land has a 10.68% stake in O&C Resources while its managing director, Ong Kah Hoe, has 7.8%. A search on the Companies Commission of Malaysia’s website shows the shareholders of OCR Land to be Kah Hoe and Dr Ong Kim Chong @ Ong Hwee Choo, who each hold a 35% stake. Tan Poo Yot @ Tan Poh Yoke, who shares the same address as Kah Hoe, has a 15% stake, Ong Kah Wee, 10%, and Ong Yew Ming, 5%. Kah Hoe, Kah Wee and Yew Ming are also directors of the company.

An advertisement calling for bids for the assets indicates that Henry Butcher Real Estate Sdn Bhd has been hired as the exclusive marketing agent for the tender.

The assets are a 15-storey freehold office building in Lorong Ceylon, Kuala Lumpur; a 5.46-acre residential development land in Jalan Gasing, Petaling Jaya; a 7.48-acre residential parcel in Taman Cheras Jaya, Selangor; a 2.13-acre industrial parcel in Jalan Perindustrian Puchong; and 13.56 acres of industrial land in Jalan Tampoi, Tebrau, Johor Baru.

The Edge has identified the 15-storey office building as Menara PMI. The 27-year-old building was purchased by Admiral Gateway Sdn Bhd, which shares common shareholders with OCR Land, from Pan Malaysian Industries in May 2013 for RM60 million. Sources say the owners now hope to dispose of the building for an estimated RM80 million or at a 33% premium to what it paid four years ago.

Menara PMI has a gross floor area of 172,068 sq ft and net lettable area of 104,011 sq ft. With two levels of basement parking offering 92 bays, it occupies 26,467 sq ft of land.

The shareholders of Admiral Gateway are Tham Kin Yee and Tham Kin Leong, who each own a 47.5% stake, while Kim Chong and Kah Hoe each own a 2.5% stake. Three of them are directors of the company while Kin Yee is listed as a manager. The company has one other director — John Tham Kin Foong.

Based on the latest financials filed with CCM, Admiral Gateway has been in the red for three consecutive years. It suffered a net loss of RM704,821 on revenue of RM578,554 in the financial year ended April 30, 2014. This widened to RM3.89 million on lower revenue of RM1.04 million in FY2016, which means its accumulated losses had increased from RM704,821 in FY2014 to RM7.19 million in FY2016.

Total liabilities as at April 30, 2016, amounted to RM71.26 million, of which RM25.68 million were current. It is not known if Admiral Gateway has any other business apart from leasing out Menara PMI.

Industry players say this asset could potentially be refurbished and continue to be used as an office or turned into a hotel, or be entirely redeveloped.

“Menara PMI is well located to facilitate a conversion into a hospitality product,” says Shuchita Balasingam, Zerin Properties head of mergers and acquisitions, business space.

She points out that with the vacancy rate for office space in KL at 20%, most tenants will choose a newer building over an older one. “Thus, the impact on a landlord’s cash flow would be tremendous if he chooses to keep the building running as is.”

Menara PMI is located in Changkat Bukit Ceylon, which has become a well-known tourist area and has seen the conversion of old shoplots and buildings into hospitality products in the last five years or so. If the same is done to Menara PMI, it would reap the rewards of the conversion. “This also has the potential to boost income and maximise yields for the owners instead of trying to compete in a highly competitive office market with a high vacancy rate,” says Shuchita.

“Examples of the successful conversion of properties in prime locations are Tune Hotel and LeApple Hotel, which were formerly Menara CMY and Mesui, in Jalan Mesui. Of late, there have been several more conversions in KL’s heritage area, the most notable being the 247-room Arenaa Star Hotel.” However, this is subject to approval from the local council.

The former Menara ING in Jalan Raja Chulan — just 400m from Menara PMI — is another example of how an office building is now operating as a hotel — the Holiday Inn Express Kuala Lumpur.

Menara PMI, a purpose-built office building, was completed in 1991. Pan Malaysia Holdings had acquired the building in 1994 for RM35 million. At the time, it used to derive an annual rent of RM4 million from the building. In 2007, Pan Malaysia Holdings sold the building to its sister company, Pan Malaysian Industry, for RM39 million.

Meanwhile, the 5.46-acre residential development parcel in Petaling Jaya is freehold and already has a development order (DO) for 19 bungalows. Valuers contacted by The Edge estimate the parcel, which is expected to be developed by Noble Land Development Sdn Bhd, to be worth RM110 per sq ft, which translates into a total of RM26 million.

The residential development parcel in Persiaran Impian Indah, Cheras, is also freehold and has a DO for two condominium blocks and one block of Rumah Selangorku apartments.

The fourth asset is the 2.13-acre industrial plot in Puchong, which still has 77 years on its lease. Industry estimates put the value of the parcel at between RM12 million and RM14 million or RM130 to RM160 psf.

In Johor, the 13.56 acres of industrial land have been advertised as suitable for a manufacturing facility and warehouse. This tract too has a DO for 47 cluster and semi-detached factories. A valuer contacted by The Edge puts its estimated price at between RM45 and RM55 psf. This means the owners may be able to get RM26 million to RM32 million for the land.

The closing date for the tender is Nov 10.