This article first appeared in The Edge Malaysia Weekly on April 10, 2017 - April 16, 2017

PROPERTY developer Eastern & Oriental Bhd (E&O), fresh from its multi-million ringgit partnership deal with Kumpulan Wang Persaraan (KWAP), is believed to be in talks to finalise the sale of Straits Quay Mall in Seri Tanjung Pinang in Penang, sources say.

The Edge understands that E&O may dispose of the seven-year-old loss-making freehold property together with a convention centre for an estimated RM230 million — a move that could help the group pare down its debt further.

When contacted, E&O did not confirm or deny that it is in talk to sell the mall. “The E&O Group is continually aligning its investment properties in the best interest of our shareholders, and as such, we continue to receive expressions of interest across our portfolio of properties,” a spokesman replies via email.

“When any acquisition or disposal is made, subject to regulatory guidelines including approval from the E&O board of directors, an announcement will be made in line with strict adherence to corporate governance,” the spokesman adds.

The Edge understands that a local company is eyeing the asset, but it is neither a real estate investment trust nor a fund. Talk is that an earnest deposit may have been received by E&O, hinting that the deal is at an advanced stage.

The mall, which is currently 80% tenanted, has a net lettable area of 270,000 sq ft. The convention centre, with a built-up of 25,300 sq ft, can accommodate 120 standard exhibition booths, 2,300 delegates for theatre-style seating and 1,800 guests for banquet-style seating. As at March 31 last year, the net book value of the asset was about RM233 million.

The asset, considered to be the first sea-fronting retail marina in  Straits Court together with 42-berth Straits Quay Marina, is an integral component of the entire Seri Tanjung Pinang development.

The mall and the convention centre are parked under E&O Trading Sdn Bhd. E&O Trading is wholly owned by Matrix Promenade Sdn Bhd which, in turn, is owned by E&O Bhd.

A search on the Companies Commission of Malaysia (CCM) website shows that for the financial year ended March 31 last year — which is the latest available financials submitted to CCM — E&O Trading registered a net loss of RM5.63 million on the back of RM12 million in revenue.

Over the past five financial years, E&O Trading’s revenue has been about the same — RM10.69 million in FY2012 and RM14.98 million in FY2014. It posted a profit of RM12.44 million in FY2014, which is commendable given that it was its fourth year of operations and malls can take up to 10 years to show their first profit.

As at March 31 last year, E&O Trading’s accumulated losses stood at RM16.84 million while total liabilities were RM183.29 million of which RM180.65 million were current.

Although the mall includes a Performing Arts Centre, also known as penanagpac, it is understood that its financials may not be reflected in E&O Trading’s balance sheet. penangpac offers a 300-seat proscenium theatre, a 150-seater experimental black box theatre and multi-functional studios.

Two weeks ago, E&O and KWAP signed a RM887.6 million deal that will see KWAP pay RM766 million for a 20% stake in the former’s Seri Tanjung Pinang (STP) Phase 2 project on the island. The remainder — RM121.6 million — will be via the issuance of new shares that will give KWAP an estimated 5.52% stake in E&O.

KWAP’s entry provides the developer with much-needed financing to get the STP project going.

E&O has said that it will be using RM306.4 million from KWAP to reduce its borrowings. E&O has incurred RM1.08 billion worth of debt to fund the reclamation of STP Phase 2A. The group has a net debt of RM1.2 billion and a net gearing of 73.65%

This is not the only retail property owned by E&O.  It has a retail component in Kuala Lumpur within the Dua Residency in Jalan Tun Razak and St Mary Residences in the Jalan Raja Chulan project. Called Dua Annex, it offers 30,000 sq ft of space while the latter, St Mary Place, is a 2-storey retail podium with 35,000 sq ft of net lettable area.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.