CAP Square Tower in Jalan Munshi Abdullah, Kuala Lumpur, has a new owner. Kumpulan Wang Persaraan (Diperbadankan) (KWAP), the country’s second largest pension fund, has bought the 41-storey office building from Germany-based investment company Union Investment Real Estate GMBH for RM511 million or RM850 psf.

According to people familiar with the deal, KWAP and Union Investment recently signed an agreement on the acquisition, which brings KWAP’s total real estate investments in the country to RM1.8 billion. The transaction is likely to be completed by year end.

At RM511 million, the deal provides KWAP with a net yield of 6.4%.

“The purchase also comes with a 6% net guaranteed rental income for three years,” a source tells The Edge.

When contacted, KWAP CEO Datuk Wan Kamaruzaman Wan Ahmad declined to comment on the story.

In April, Wan Kamaruzaman was quoted as saying that the pension fund was in the process of finalising the acquisition of an office tower in Kuala Lumpur owned by a foreign party whose investment had matured.

The latter had reportedly put a RM580 million price tag on the property.

The Edge learnt from sources that the office building was Cap Square Tower.

The Grade A office building, which has a net lettable area of 601,574 sq ft and 461 parking bays, is located in a high-profile area in the city centre, bordering the Golden Triangle and Central Business District. It is also adjacent to Silka Maytower Hotel & Service Apartment.

Cap Square Tower enjoys over 90% occupancy with the bulk of its tenants coming from the banking and finance sector, such as Citibank and RHB Bank.

The latest deal marks KWAP’s second office tower acquisition in Malaysia and its fourth asset purchase since April 2015. Its first office tower acquisition was Integra Tower at The Intermark, Kuala Lumpur, which it bought from BlackRock Inc in April last year for RM1.065 billion. This was followed by the acquisition of a piece of land in Jalan Changkat Kia Peng for RM87.92 million in October last year and another parcel in Jalan Stonor for RM140 million this January. Including its investment assets in Australia and the UK, the total value of KWAP’s investments stood at RM125 billion as at June 30, 2016.

Adzman Shah Ariffin, chief real estate consultant at ExaStrata Solution Sdn Bhd, opines that at RM850 psf, the price for Cap Square Tower is reasonable.

“Grade A buildings in the city centre have been transacted at over RM900 psf with yields of more than 6%. This transaction at RM850 psf is well below expectations. Therefore, there is good upside potential for investment returns,” he tells The Edge.

“With the reopening of Cap Square Retail Centre as Jakel Square, comprising the Jakel textile mall and Lulu hypermarket and department store, it is expected that the place will become more vibrant and attract better quality tenants in the future. All this is subject to the ability of the building to retain the current tenants, maintain good occupancy and achieve upward rental revision upon renewal of the existing tenancies.”

Stanley Toh, director of valuation at real estate agency LaurelCap Sdn Bhd, deems a 6.4% yield as “not bad”. “At RM850 psf, the price is reasonable, given the current economy and bearing in mind the good tenant profile of the office building. This [yield] is more than a fixed deposit rate,” he says.

Cap Square Tower is owned by UIR Malaysia Office 1 Sdn Bhd. A search with the Companies Commission of Malaysia reveals that UIR Malaysia is a wholly-owned subsidiary of Union Investment. Set up in 2010, UIR Malaysia’s nature of business is described as “to own and invest in real estate and real estate-related assets”.

In its financial year ended Dec 31, 2015, UIR Malaysia posted a net loss of RM10.22 million. As at Dec 31, 2015, it had accumulated losses of RM95.06 million while total liabilities stood at RM225.97 million, of which RM3.17 million comprised current liabilities.

Cap Square Tower was previously known as Office Tower 2 and formed part of the Capital Square development by Bandar Raya Developments Bhd (BRDB), comprising offices, retail outlets and residences. BRDB had managed to complete only Menara Multi-Purpose when the 1997/98 Asian financial crisis struck. In January 2008, BRDB sold the partially completed Office Tower 2 en bloc to Union Investment for RM439.3 million. BRDB subsequently completed the Cap Square Retail Centre.

In 2014, BRDB (which was delisted from Bursa Malaysia in late 2012) sold Cap Square Retail Centre to Hajra Properties Sdn Bhd, a company owned by the Jakel family known for its textile wholesale and retail business. Since the takeover, the area has been renamed Jakel Square and renovated to house Jakel Mall and Lulu. A shariah-compliant hotel is also planned for the site.

Menara Multi-Purpose is owned by MCA but the political party has been looking for a buyer for the building since 2015 and is seeking to sell it for RM410 million.

In January 2008, Union Investment bought Cap Square Tower for €100 million, marking its first investment in Malaysia.

However, industry players say since its entry, the foreign fund has not purchased any other commercial asset. Thus, this sale to KWAP could signal its exit from the country.

Try out one of our super tools, the rental yield calculator, here.

This article first appeared in The Edge Malaysia on Oct 3, 2016. Subscribe here for your personal copy.

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