This article first appeared in The Edge Financial Daily on December 18, 2018

KUALA LUMPUR: Sime Darby Property Bhd (Sime Property) and S P Setia Bhd are selling their stakes in the Phase 2 commercial assets at the Battersea Power Station site in London to PNB-Kwasa International 2 Ltd for £1.583 billion (RM8.35 billion).

Sime Property and S P Setia hold a 40% stake each in The Battersea Phase 2 Holding Company Ltd, a wholly-owned subsidiary of Battersea Project Holding Company Ltd. The remaining 20% stake is held by the Employees Provident Fund (EPF).

PNB-Kwasa International 2, meanwhile, is 65% owned by Permodalan Nasional Bhd (PNB) and 35% by the EPF.

The sale and purchase agreement was signed last Friday and the transaction is expected to be completed in the first quarter of 2019, S P Setia and Sime Property said in a joint statement yesterday.

“We are pleased with the sale of the Phase 2 commercial assets. It will bode well with our business plans as we continue to play a major role in the overall development of this iconic project. S P Setia is fully committed and positive on the long-term prospects of the project,” said S P Setia president and chief executive officer Datuk Khor Chap Jen.

“We would like to thank all the parties involved in evaluating this acquisition and making this transaction a success. The commitment shown by all demonstrates the confidence in this iconic London landmark development,” added Khor.

Sime Property group managing director Amrin Awaluddin said: “This is an important milestone in the development of the Battersea Power Station site, and it is a strong sign of confidence in the long-term success of this global property icon. We are pleased to have secured this commitment from two of Malaysia’s leading institutions.”

The Phase 2 commercial property is part of the restoration of the iconic power station building itself and is expected to reach completion at the end of 2020, opening to the public in 2021, PNB and EPF said in a separate joint statement.

The commercial area purchased comprises, among others, 540,000 sq ft of premier Grade A offices, 420,000 sq ft of retail, food and beverage and leisure as well as various event spaces.

Some 500,000 sq ft of the office space has been leased to Apple for its new London campus, providing a strong base for the creation of new and thriving communities around the development.

The overall Battersea area is being developed over seven phases since 2012. Some 867 residential units in Phase 1 have been successfully completed and delivered over the past two years.

PNB president and group chief executive Datuk Abdul Rahman Ahmad said the acquisition enables PNB to consolidate its strategic ownership in the development, which is expected to deliver a sustainable income stream and potential capital appreciation in the future.

He noted that under the terms of the acquisition, PNB-Kwasa International 2 is given a minimum guaranteed yield throughout the construction period and up to five years post-completion with a price adjustment mechanism to account for any difference in actual rental income compared to forecast.

“This will ensure downside protection for PNB and EPF whilst enabling the seller to earn-out upside in the development should the actual rental income perform better than expected,” he said.

EPF deputy chief executive officer (investment) Datuk Mohamad Nasir Ab Latif said the fund is committed to seeing through the completion of the Battersea project.

“As an integrated development backed by strong tenants, we are confident in the potential of the Phase 2 commercial property to yield sustainable and long-term rental income for the EPF,” he said.