Affin Bank buys TRX land from 1MDB for record breaking RM4,699 psf

The world's newest financial district, the Tun Razak Exchange, by 1MDB. The world's newest financial district, the Tun Razak Exchange, by 1MDB.

Affin Bank Bhd, which is controlled by Malaysia's armed forces fund Lembaga Tabung Angkatan Tentera (LTAT), is paying RM255 million cash to buy a parcel of land in the Tun Razak Exchange (TRX)  a property development project wholly-owned by 1 Malaysia Development Bhd (1MDB).

Affin Bank, a wholly-owned unit of Affin Holdings Bhd, announced that it entered into a sales and purchase agreement (SPA) with KLIFD Sdn Bhd, a unit of 1MDB, to acquire the tract measuring 54,266 square feet, near Jalan Tun Razak in Kuala Lumpur.

Affin Bank is one of Malaysia's smallest banking group.

The purchase price translates into RM4,699.07 per square feet (psf)  a record land transaction price in the Kuala Lumpur city centre.

According to Affin Holdings group chief executive officer (CEO) Kamarul Ariffin Mohd Jamil, the land has been independently valued at RM261 million by property valuer CH Williams Talhar & Wong (WTW). This means that the banking group is buying it at a discount.

Affin Bank is the second government-linked company (GLC) that has bought land in the TRX after Lembaga Tabung Haji, the pilgrim fund board of Malaysia, which paid RM188.5 million, or RM2,780 psf for a 1.56-acre, or approximately 67,792 square feet, tract there.

The pilgrim fund originally intended to develop the land into one block of 40-storey luxury service apartment consisting of 516 apartment units with an average selling price of RM1,700 psf. Its potential gross development value (GDV) is RM828 million.

Tabung Haji's land deal met with public outcry, especially from its depositors, three months back. After much controversies, the company later said that it would re-sell the land for a small profit.

With hindsight, the pilgrim fund seems to have struck a better deal with RM2,780 psf compared with RM4,699 psf, the price that Affin Bank is paying now.

The debt-laden 1MDB is probably the ultimate king of deals given that the strategic development fund paid only a total of RM194 million, or RM64 psf, to buy the 70 acres of land in the TRX from the government in 2010 with plans to develop it into a financial hub.

1MDB's wholly-owned unit 1MDB Real Estate Sdn Bhd, the master developer of the TRX and Bandar Malaysia in Sungai Besi, said: "The financial district is investing close to RM3.8 billion for its infrastructure, and the amount is factored into the selling price of the land."

The SPA was signed following extensive negotiations that began in 2012, and covers the development rights to build a commercial tower, said 1MDB.

Part of the TRX land was originally supposed to go to Pelaburan Hartanah Bhd, formerly known as Pelaburan Hartanah Bumiputera Bhd, a government agency. But it was instead sold by the government to 1MDB to be used for the development of the TRX.

The land acquisition does not require approval from shareholders because the purchase price is barely 3.2% of Affin Holdings' net assets of RM7.95 billion as at 31 December 2014, according to the announcement to Bursa Malaysia.

The announcement also pointed out that Tan Sri Lodin Wok Kamaruddin, the chairman of 1MDB, is the company's deputy chairman. Tan Sri Lodin is also the chief executive of LTAT, which owns a 35.28% stake in Affin Holdings.

The group noted that Lodin's common directorships do render him an interested party of the acquisition under Bursa's listings requirements.

In a filing with Bursa, Affin Holdings said the valuation for the land had been carried out using the comparison and residual methods of valuation.

The comparison method of valuation entails analysing recent transactions and asking prices of similar properties in and around the locality to arrive at the market value.

The residual method, meanwhile, entails gross development value of the project and deducting therefrom the estimated cost of development. The resultant amount is then deferred over the period of time required for the completion of the project to arrive at the market value.

Speaking at a press conference, Kamarul, who is also the CEO and managing director of Affin Bank, pointed out that the development will have 35 floors and have a gross floor area (GFA) of 823,439 square feet. Based on the purchase price of RM255 million, the price per gross floor area will be at RM309.67 psf, while the plot ratio will be 15.2 times.

A plot ratio of 15 times indicates that the gross floor area to be built on the parcel is about 15 times or more.

"When compared with price per GFA, RM309.67 is also higher than Tabung Haji's transaction of RM264.94 albeit the Tabung Haji's land has a lower plot ratio of 10.47 times," according to a research report by Hong Leong Investment Bank Research (HLIB Research) earlier today.

HLIB Research pointed out while financial impact is limited, high acquisition price could raise concerns among investors, especially amid current low investors' sentiment.

The parcel of land that Affin has proposed to purchase fronts Jalan Tun Razak and sits at the intersection of two mass rapid transit (MRT) stations.

“As of now, we do not have a proper home per se and this is a very good opportunity for us to relocate there. We have been presently leasing our office here at Menara Affin for the past 40 years,” said Kamarul.

Kamarul said that the board had given its unanimous vote to the purchase, including the independent directors and the directors that had represented its 23.5% shareholder, Hong Kong-based Bank Of East Asia Ltd.

Pursuant to the purchase of this land, Affin will allocate approximately another RM300 million to construct its new head office thereafter.

“The total consideration is about RM600 million, including land and construction, but this is still a preliminary figure. We expect this to be done latest by the end of 2018,” Kamarul added.

"We have been sourcing for a suitable location that meets our requirement, with the right price. There was a need as the bank, together with other entities within Affin group, has been growing and we need more space for everyone under one roof."

"This is a prime location and having Affin's new head office here will definitely reinforce our branding and position in the market. And with everyone under the same roof, it is our hope that this will generate better synergies and more collaboration within the Affin group," said Kamarul.

He noted that Affin will pay a 10% deposit for the acquisition and the remaining 90% upon presentation of the registration title. It will be financed by internal funds.

After Tabung Haji's land deal news emerged earlier this year, 1MDB announced it sold a 3.4-acre freehold tract of land to Indonesia's property developer Mulia Group for RM665 million.

Mulia Group, which has a leading market share for premium commercial properties in Jakarta, intends to develop TRX's Signature Tower on its land, which was acquired close to RM4,490 psf.

“Our Mulia Group wishes to be an integral part of this iconic state-of-the-art development not only for Malaysia but for the region and beyond."

“We see TRX’s potential to further develop the city’s role as a financial capital, and the TRX aids our growth and expansion plans. I am committed to personally seeing this project through, drawing from our vast experience,” said Eka Tjandranegara, president director and owner of Mulia Group.

TRX’s significant investment in its infrastructure is to create a truly accessible world-class financial hub. Tenants can connect to KLCC and the rest of Greater Kuala Lumpur, via the city's largest integrated underground MRT interchange station (convergence of Line 1 and Line 2).

The MRT will connect TRX to the proposed High Speed Rail terminus station at Bandar Malaysia, linking TRX to Singapore’s financial centre.

*** *** ***

Earlier this year, 1MDB roped in Australia's Lend Lease to jointly develop TRX's Lifestyle Quarter, which is the retail focal point for TRX, that will be built over 16.8 acres of land within TRX. Its potential GDV will be in excess of RM8 billion upon completion.

To recap back in April 2013, 1MDB awarded its first package of earthworks and substructure contract to WCT Berhad worth RM169 million. In September 2014, 1MDB signed a 20-year concession agreement with Veolia Water Technologies Southeast Asia for wastewater treatment and recycled water supply in TRX.

More recently, government-linked property developer Malaysian Resources Corporation Berhad (MRCB) surprised the market when it won the deal to buy the 1.86-acre German Embassy Land at Jalan Kia Peng for RM3,188 psf, or RM259.1 million.

Singapore listed property developer, Oxley Holdings Ltd bought a 3.42-acre piece of freehold land in Jalan Ampang for RM3,325 psf, or RM446.7 million in November 2013.

The following month saw KSK Land Sdn Bhd buying a 3.95-acre freehold parcel at Jalan Conlay for RM3,299 psf.

In September 2010, Urusharta Cemerlang Sdn Bhd, whose parent company owns the Pavilion KL shopping mall, bought a tiny strip of leasehold land in front of the mall from Singapore billionaire Kwek Leng Beng for a record price of RM7,209 psf.

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