This article first appeared in The Edge Malaysia Weekly on April 24, 2017 - April 30, 2017
DA Land Sdn Bhd, which unveiled The TWO, a multibillion-ringgit integrated commercial development in Rawang, Selangor, four years ago, is seeking a partner. It is looking to divest an 80% stake for an estimated RM160 million, documents show.
The TWO, an entry point project (EPP) under the Economic Transformation Programme (ETP) and officially launched by Minister of Tourism and Culture Datuk Seri Mohamed Nazri Abdul Aziz in 2015, was expected to comprise shophouses, a mall and theme parks on a 51-acre site.
The TWO is the acronym for “Theme park resort, Wholesale city, Outlet mall”. The development will occupy two parcels of land — 42 acres and nine acres — located on both sides of the North-South Expressway, about 2km from Exit 116. It is about the same size as the 50-acre Mitsui Outlet Park KLIA and car park.
The valuation of the company is based on the value of the land of RM90 psf, documents obtained by The Edge reveal.
DA Land executive director Sip Mun Yee confirms that the company is looking for a partner. A document, titled Executive Summary of The TWO, has been sent out to potential investors. “We are looking for a reputable partner that will be able to lead this development. A strong partner with connections will go a long way ... Support from local banks will be better,” Sip points out.
He says DA Land had originally planned to build a stratified mall under Phase 1 but had to change its plans as it managed to ink only 40 contracts, although there were 400 interested parties. The company was unable to obtain end-financing even after providing the banks with a letter from the Ministry of Tourism and Culture. “Banks have ceased lending for (stratified) malls,” Sip says, adding that the 360 interested parties also failed to obtain end-financing.
Therefore, DA Land has scrapped the construction of the mall under Phase 1, which will now comprise 103 shophouses. When the mall is built in the subsequent phase, the company plans to retain it for recurring income. DA Land plans to offer the 40 purchasers the option to convert their strata unit purchase to that of a shophouse.
Due to these changes, Sip says the total gross development value (GDV) of about RM5 billion announced earlier will be revised to RM3 billion. Property prices have also fallen when compared with four years ago.
In justifying the RM90 psf pricing, Sip says DA Land has already obtained the development order for the project from Majlis Perbandaran Selayang and approvals from the Malaysian Highway Authority. It has also paid the development charges.
Sip says a valuation done in 2014 places the value of the land at RM80 psf. DA Land purchased the land, comprising several lots, between 2010 and 2013 at RM20 to RM50 psf.
He explains that while the price of the equity in the company is based on the land valuation, a recent business valuation conducted by Grant Thornton shows that it is worth a lot more. “The present business valuation (by Grant Thornton) is RM650 million,” Sip says.
DA Land claims The TWO will be the most attractive rest and relaxation stop along the highway. According to the document sent to potential investors, “The TWO Tourist Village can tap into Malaysia’s booming tourist market and attract the fast-growing local affluent population and the surrounding high-income population from the Klang Valley.”
Founders Derek Chew Ruenn Hing and Howard Chew Ruenn How hold 90% and 10% of the company respectively. Derek also founded Houz Depot, a one-stop home improvement wholesaler.
Alternatively, DA Land is open to a smaller-scale partnership. This option involves a tie-up on the same 80-20 basis for the building of the 103 shophouses in the 11-acre Phase 1, called the Tourist Village. There will be 24 single-storey, 28 double-storey and 51 three-storey shophouses. The GDV is estimated at RM180 million while the gross development cost (GDC) is RM130 million.
Sip says this option was introduced, considering the current economic situation. The partner can also be given the first right of refusal when it comes to future components of the project. In 2014, DA Land signed a memorandum of understanding with Australia-based themed-attraction specialist Sanderson Group to assist in the design of the theme parks. Sip points out that the new partner, as the major shareholder, will be free to make changes to the plans for the theme parks.
According to the document, DA Land plans to use part of the funds from the divestment to redeem its term loans to make the properties free from encumbrances. When asked about the company’s debt level, Sip says it is “manageable”.
Expected to be completed in 2019, Phase 1 should generate a gross profit of RM50 million.
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