This article first appeared in The Edge Malaysia Weekly on April 22, 2019 - April 28, 2019

MALAYSIAN Resources Corp Bhd (MRCB), the developer and owner of Menara Celcom in PJ Sentral Garden City in Petaling Jaya, Selangor, has appointed at least six real estate agents to seek offers for the office building, which is estimated to be worth some RM500 million.

The newly built 33-storey building sits on a 49,449 sq ft site. It offers 1.04 million sq ft in gross floor area and 450,000 sq ft in net lettable area.

In a brief interview with The Edge, MRCB group chief operating officer Kwan Joon Hoe confirms the appointment of several real estate agents to seek expressions of interest (EOI) for Menara Celcom. An EOI is different from a sale by tender as it is generally non-binding. Under an EOI, both parties could decide not to proceed with the deal, for example.

Kwan, however, points out that there is no urgency to sell the commercial asset and that MRCB will only sell it if the price is right.

“We will test the market and [put out] feelers to decide what is the best price that we can sell it for. But it will not necessarily translate into a deal,” he explains.

Once an offer is received, MRCB will present it to its board of directors, who will decide if the company should sell the asset or wait for yield appreciation. If MRCB decides to sell, as the sponsor of MRCB-Quill Real Estate Investment Trust (MQREIT), it will approach the REIT, which has the right of first refusal and the option of matching the offer price or offering a higher amount. If the REIT is not keen on the asset, MRCB can then sell it to the other party.

While Kwan declines to reveal MRCB’s asking price, industry sources tell The Edge that the company is looking to sell the asset for RM500 million.

The building, developed by MRCB’s wholly-owned subsidiary Puncak Wangi Sdn Bhd, was handed over to Celcom Axiata Bhd last September. Celcom has a 21-year lease (15 years with an option to extend the lease for two 3-year terms) on the building and is currently looking for tenants to fill 74,000 sq ft of space spread over five floors.

It is learnt that under the lease agreement, the base rent will be revised on the 7th, 16th and 19th years while the service charge will increase by 10% every three years. Potential tenants have been told that the net rental is RM5.30 psf while the service charge is RM1.25 psf.

If the RM5.30 psf net rental is anything to go by, MRCB’s annual rental income from the building is an estimated RM28 million.

Meanwhile, at RM500 million, the asking price for the 450,000 sq ft office space works out at RM1,100 psf and pegs the yield of the building at 5.3%. When asked to comment on feedback given by real estate agents contacted by The Edge, who opine that the asking price is on the high side in the current property market environment and that the price is more likely to be fetched by buildings in Kuala Lumpur city centre and not in Petaling Jaya, Kwan says MRCB has received positive offers. “It has not reached the mark we want but is not that far from our target.”

In 2014, Danajamin Nasional Bhd tied up with CIMB Islamic Bank Bhd and RHB Islamic Bank Bhd to provide financing of RM420 million — comprising a Danajamin-guaranteed RM200 million eight-year Islamic medium-term notes (IMTN) programme and a RM220 million Islamic term loan facility provided jointly by the two banks — to Puncak Wangi to develop what is now known as Menara Celcom.

According to a RAM Ratings report dated Sept 18, 2018, Puncak Wangi is highly leveraged with the bulk of the office tower’s development cost being funded by the Islamic bonds and bank loans. It says that by December 2018, the debt would be at RM420 million once the company fully draws down on its debt facility to fund the construction costs as well as to repay its debt obligations.

“Puncak Wangi is highly dependent on the disposal of the office tower or refinancing to meet the bullet repayments on the principal of its IMTN and term loans. In view of the long-term lease with Celcom upon the project’s completion, and MRCB’s intention to inject its investment properties into the group’s REIT, the likelihood of the office tower being disposed of to the REIT is deemed high. In this regard, we highlight that any delay in disposal will result in the IMTN maturing in November 2019 and being rolled over,” RAM Ratings states.

Kwan, however, says the rental income will be sufficient to service the sukuk should the building remain unsold.

Meanwhile, the next building that is expected to be completed in PJ Sentral is a 30-storey tower built for Malaysia Building Society Bhd. MRCB is expected to hand it over to MBSB, which paid RM239.24 million for the building in 2014, by the end of this year.

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.