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EXCLUSIVE: Lembaga Tabung Haji is buying 1MDB's TRX parcels of land?

Tun Razak Exchange by 1MDB. Tun Razak Exchange by 1MDB.

[UPDATED]

CLARIFICATION: It has been confirmed that Lembaga Tabung Haji has bought ONLY one out of the two parcels of land that was reported here earlier for RM188.5 million after discount. The second parcel of land was not purchased. The purchased land will be subsequently sold to an interested party.

Later, the civil service pension fund KWAP and Indonesia's Mulia Group was reportedly linked to another land purchase deals within the TRX.

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The Pilgrim Fund Board of Malaysia (referred to as "Lembaga Tabung Haji") is said to be acquiring two plots of land from 1MDB Real Estate Sdn Bhd (1MDB-RE).

According to leaked documents sighted by PTLM on the Internet recently, Lembaga Tabung Haji's property arm, TH Properties Sdn Bhd (TH) was said to be "in the process" of acquiring two subdivided plots of land from 1MDB for a total consideration of RM772 million.

These leaked proposal documents have not been verified by PTLM or any other business media. The full content is being summarised as below.

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The said two freehold plots of land are located within the Tun Razak Exchange (TRX) megaproject, of which 1MDB-RE is the landowner and master developer.

1MDB-RE is the real estate subsidiary of cash-strapped 1Malaysia Development Berhad (1MDB), a strategic investment company wholly-owned by the Government of Malaysia. 

These plots of land will come with access infrastructure and other amenities which will be built by the master developer and/or its joint venture partners in accordance to the approved TRX Masterplan.

The first plot of land is Plot B.10.15-RT. It has a total land area of approximately 67,792 sq ft or 1.56 acres.

The site is located on the western side of TRX fronting Jalan Barat to the west and will overlook a large public park and underground retail area to the east. Next to the site will be two residential service apartment blocks and a commercial block.

This plot will be purchased at RM2,860 psf or a total consideration of RM193.8 million. Interestingly, this was lower than 1MDB-RE's initial asking price of RM3,100 psf or RM210 million.

[Update] It was later confirmed that the plot of land was acquired at RM188.5 million, which works out to around RM2,780 psf. 

The said plot is being planned for one block of 40-storey luxury service apartments with a sky club. Its total gross development value (GDV) is expected to be RM828 million which would translate into an average selling price of RM1,700 psf for each apartment unit.

It will comprise of 516 apartment units, a retail floor area of 11,840 sq ft and 681 carpark bays. The total development costs excluding land cost is projected to be RM462 million.

The second plot of land is Plot C7.7-CT. It has a total land area of approximately 148,105 sq ft or roughly 3.40 acres.

The site is located in the heart of TRX with the objective to act as an anchor to TRX main components comprising a large public central park, the Lifestyle Quarter which includes a retail mall, an interchange MRT station (Line 1 and Line 2) - the largest underground MRT station in Malaysia, a proposed trading hub as well as international 5-star and business hotels.

This plot will be purchased at RM3,900 psf or a total consideration of RM577.6 million. Again, this was apparently lower than 1MDB's initial asking price of RM4,200 psf or RM620 million.

[Update] This second plot was not acquired. Later, this same plot was said to be sold to Indonesian property developer Mulia Group for RM665 million, or equivalent to close to RM4,490 psf.

It was widely acknowledged by practitioners in the property industry that parcels of land within TRX has been approved-in-principle for a development plot ratio as high as 1:13, which is amongst the highest ever heard in Kuala Lumpur. This explains the high reserve price now set by 1MDB-RE. 

This plot of land was earlier earmarked for a "Signature Tower", which is a 74-storey 'Grade-A', green-rated office tower that will be the centerpiece of the Financial Quarter and the focal point of TRX as a whole. The total development costs excluding land cost is projected to be RM1.978 billion.

The first plot of land was valued by Jones Lang Wootton Malaysia whereas the second plot of land was valued by DTZ Nawawi Tie Leung.

Astonishingly, 1MDB, which was exposed recently by former Prime Minister Tun Dr Mahathir Mohamad in his personal blog, is believed to have been awarded several years ago the large track of Government-owned TRX land for roughly RM320 million, or at an average of only RM105 psf (some plots could be lower than RM100 psf).

The leaked proposal documents further mentioned that the completed "Signature Tower" will be leased back to the master developer for a period of 5 years at a Net Yield of 5.5% per annum on the actual total development and land costs incurred. 

The master developer will market and secure potential reputable office tenants for TH and will ensure compliance to sharia requirements, which is a major requirement for TH.

The rental income will form the underlying guaranteed income to TH. Hence, the total guaranteed income will certainly be dependent on the potential occupancy level and rental rates for the total lettable commercial space during the guaranteed period.

At 5.5% per annum, this is lower than today's market average of 7% per annum prevailing net yields required by prominent listed Malaysian real estate investment trusts (REITs).

The "Signature Tower" building is presumed to achieve just slightly over 8% in net yield if the building is rented out at RM15 psf and if it is 100% occupied. This is assuming the site was purchased at RM578 million and the total development costs is RM1.978 billion.

Already, there is a widening gap between demand and supply for office space. The total office supply in Greater Kuala Lumpur now stood at closer to 100 million sq ft, which is more than Singapore's 80 million sq ft. A projected future office supply of 23 million sq ft is expected to hit the market by end of 2017.

This risk factor is thought to be mitigated by virtue of the 70-acre TRX being positioned as Kuala Lumpur's premier financial and business hub with tax incentives for owners/tenants that fall under marquee incentives such as accelerated capital allowances (100% over 2 years), stamp duty retention and 50% additional tax deduction on renovation expenses.

It is unclear if tenants would still be able to get another approved incentive, which is an additional 50% deduction (total of 150%) on rental of any premise within TRX, which presumably included the "Signature Tower", for a period of 10 years.

This is because a deduction of rental would reduce the said rental income for 1MDB, who will have to pay for any shortfall from the guaranteed income to the owner TH. 

It was noted that TH would automatically qualify as a "TRX Approved Developer" once the deal is completed. This means that TH will enjoy a tax exemption on 70% of its statutory income from the sale of service apartments and the rental of office space located in TRX. This exemption applies for a maximum period of 5 years.

The entire TRX Masterplan will be certified as Leadership in Energy and Environmental Design Development (LEED-ND) and Green Building Index (GBI) Township.

TRX will be equipped with Smart City Infrastructure comprising TRX Security, Urban Operating System, Digital Homes, Mobile and Wireless Cloud and Smart Waste System among others.

As for TH, it's flagship property development is the 5,119-acre Bandar Enstek in Negeri Sembilan. Located just under 10 minutes drive to the Sepang F1 Circuit and the Kuala Lumpur International Airport (KLIA), the integrated township is expected to generate a GDV of over RM9 billion.

TH already owned several prime properties in Malaysia and had snapped up three prime commercial properties in London over the last two years. Some of its properties in its portfolio are: 

  • 151 Buckingham Palace Road, London
  • 10 Queen Street Place, London
  • Unilever House, Leatherhead in Surrey, London
  • Wisma Tabung Haji in Jeddah, Saudi Arabia
  • Bangunan Tabung Haji, Jalan Tun Razak
  • Menara Tabung Haji in Johor Bahru
  • Menara TH Perdana, Jalan Sultan Ismail 
  • Bangunan TH Selborn, Jalan Tun Razak
  • TH Uptown 3 in Damansara Uptown, Petaling Jaya
  • TH Saujana (Block C) in Peremba Square, Saujana
  • Wisma Shell (Shell Business Service Centre) in Cyberjaya
  • Menara Bank Islam, Jalan Perak
  • Menara D' Damansara in Glomac Damansara
  • Menara TH in Platinum Park KLCC
  • Tower 6 Avenue 5 in Bangsar South 
  • The Islamic Administration Complex in Putrajaya
  • The upcoming Tabung Haji Hotel and Convention Centre in KLIA. 

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In March 2015, 1MDB roped in Australia's Lend Lease [click for news] 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. It has a potential GDV of over 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 [click for news] 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 3.11-acre piece of freehold land in Jalan Ampang for RM3,300 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

Further back 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.

This land is now being developed as a 51-storey mixed use tower consisting of a 10-storey extension to the retail mall and 382 residential units plus 1 unit of penthouse known as Pavilion Suites Kuala Lumpur. The residential units went on exclusive sale at an average price of RM3,000 psf per unit. 

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