KUALA LUMPUR: Tower Real Estate Investment Trust (REIT), which is controlled by tycoon Tan Sri Quek Leng Chan, is disposing of 19 office parcels and 190 car park bays within Menara ING in Jalan Raja Chulan here for RM132.34 million cash, which will result in a gain of RM40.4 million for the trust.

“The proposed disposal will have a favourable impact on the net gearing of the trust. Based on the net asset value (NAV) per unit of Tower REIT as at Sept 30, 2014 of RM1.7948, the proposed disposal is expected to result in an increase in the NAV per unit by 5%,” said Tower REIT in a filing with Bursa Malaysia yesterday.

Of the total realised gain of RM40.4 million, RM15.04 million had been recognised as fair value gains in the prior years, it added.

Tower REIT said GLM REIT Management Sdn Bhd, which manages Tower REIT, yesterday signed a sale and purchase agreement (SPA) with Goldstone Kuala Lumpur Sdn Bhd for the proposed disposal.

Under the deal, Goldstone will first pay a 10% deposit or RM13.23 million of the transaction, with the balance RM119.11 million to be settled within three months from the date of the SPA.

The property has a net lettable area of 160,413 sq ft and a net book value of RM101.5 million as at Dec 31, 2013.

Tower REIT said the disposal will have a favourable impact on its net gearing and is expected to increase its NAV per unit by approximately 5%. As at Sept 30, Tower REIT’s NAV per unit stands at RM1.79. “The proposed disposal is expected to result in a total realised gain of approximately RM40.4 million, of which RM15.04 million had been recognised as fair value gains in the prior years. The proposed disposal will contribute positively to the earnings of the trust for the financial year ending Dec 31, 2015,” Tower REIT said in a statement.

Proceeds from the disposal will be used to repay bank borrowings and will enable GLM REIT to pursue acquisition opportunities to grow the trust. “The proposed disposal will contribute positively to the earnings of the trust for the financial year ending Dec 31, 2015 (FY15),” said Tower REIT.

Besides Menara ING, Tower REIT also manages two other commercial properties: Menara HLA in Jalan Kia Peng and HP Towers in Bukit Damansara here. As at Sept 30, Tower REIT’s total portfolio was valued at RM642.5 million. Currently, Menara HLA accounts for 51% of the group’s total real estate portfolio, followed by HP Towers (33%) and Menara ING (16%). As for Tower REIT’s earnings, it has been declining since FY12, which it blamed on intensified competition that has caused additional pressure on its rental and occupancy rates.

Tower REIT’s occupancy rates in Menara HLA dropped to 74% last year from 99% in FY12. Similarly, the occupancy rates in Menara ING and HP Towers dipped to 94% and 77% last year from 100% and 80% in FY12 respectively.

For the nine months to Sept 30, 2014 (9MFY14), the group’s net profit plunged 51% to RM16.48 million or 5.88 sen per share from RM24.83 million or 8.85 sen per share, due to lower occupancy rates in Menara ING and Menara HLA.

Revenue dropped 19% to RM 33.99 million from RM40.47 million in the same period last year on higher operating expenditures, mainly due to higher assessment and tariff hikes.

Tower REIT is currently trading sharply below its NAV. The stock has fallen by 29 sen or 19.33% year-to-date to close unchanged at RM1.21 yesterday, giving it a market capitalisation of RM339.4 million.

This article first appeared in The Edge Financial Daily, on December 30, 2014.