KUALA LUMPUR (June 9): Magna Prima Bhd's wholly-owned subsidiary Magna City Shah Alam Sdn Bhd (MCSASB) proposed to acquire a piece of leasehold land measuring about 5.25 acres at Bandar Shah Alam, Selangor, from Regalia Raintree Sdn Bhd (RRSB) for a consideration of RM43 million, to undertake a residential development.
In a filing to the Bursa Malaysia, Magna Prima said MCSASB has on even date entered into a conditional sale and purchase agreement (SPA) with RRSB to purchase the land.
Thereafter, MCSASB will undertake the development, construction and completion of the proposed residential development on the land that has an estimated gross development value (GDV) of RM220.81 million.
“The total development cost is estimated to be RM180.69 million, with an expected gross profit of RM40.12 million,” it said.
The valuation of the land, carried out by Messrs Khong & Jaafar Sdn Bhd (K&J), as at April 15 stood at RM38 million, after assessing the market value of the land with the benefit of planning permission and the approved site layout plan.
The purchase consideration was derived at based on a willing buyer willing seller basis, after taking into consideration the market value of the land; the planning permission, site layout plan and earthworks plan for the land having being approved and are still subsisting.
In addition, the group also considered the supporting grounds from the feasibility study undertaken by PPC International Sdn Bhd (PPC), another independent firm of valuers, in its assessment on the viability of the proposed development; and the development potential of the land.
The company planned to develop a residential project, comprising 315 units of 3 blocks of 15-storey residential apartments and 5 shop offices. The residential condominiums and shop offices are proposed to be complemented with 953 parking bays.
“The Proposed Development is expected to commence in the third quarter of 2016 and is estimated to be completed by 2019.
“The development cost will be financed through a combination of internally-generated funds and/or bank borrowings, the quantum of which has yet to be determined at this juncture. The proposed name of the project is ‘The View Residence’,” it said.
Magna Prima said the acquisition is part of its strategic growth and future plans to ensure earnings sustainability for the group, moving forward.
The proposed acquisition will enable the Group to immediately embark on a small scale development amidst the slowdown in property market conditions, considering the land has obtained the necessary approvals from Majlis Bandaraya Shah Alam.
In a report dated June 3, PPC opined it is not appropriate for the group to undertake development of its existing land banks (which are generally large land banks) in the short term, given the present state of the property market where a relatively small scale residential development will sustain and prevail in a slower market.
Furthermore, PPC commented that the proposed pricing for the development of the land of RM600 per sq ft for the residential units and RM750 per sq ft for the shops, commensurates with market pricing of new and on-going similar development within the locality, which are priced between RM590 per sq ft to RM820 per sq ft based on recently-launched competitive developments within the vicinity of the property.
“Further[more], the proposed pricing for the development translates into a gross internal rate of return (IRR) of 37.71% and a gross return of sales of 19.14%. This is an acceptable return, especially for small-sized development projects where the associated risk is relatively lower,” it added.
The proposed acquisition also represents an opportunity for MPB Group to strengthen its position and market presence in Klang Valley, particularly in the Shah Alam city area in Selangor.
“The proposed development is expected to enhance the future revenue stream of Magna Prima group and contribute positively to the group’s financial performance in the future,” it added.
Magna Prima closed flat at 99 sen today, for a market capitalisation of RM328.07 million.