Mah Sing in Pekeliling flats land venture

KUALA LUMPUR: Property developer Mah Sing Group Bhd has secured the development rights for a 4.08-acre (1.63ha) parcel along Jalan Tun Razak-Jalan Pahang, which formerly housed the Pekeliling flats, with a potential gross development value (GDV) of RM900 million.

In a statement on Tuesday, Aug 2, Mah Sing said its wholly-owned subsidiary Grand Pavilion Development Sdn Bhd had entered into a joint venture (JV) agreement with privately-held Asie Sdn Bhd and its unit Usaha Nusantara Sdn Bhd to undertake a niche development named M Sentral there.

Under the agreement, Usaha Nusantara will grant Grand Pavilion the sole right to develop the land for RM106.6 million, to be settled in RM63.96 million cash and a 40% stake in Grand Pavilion. Mah Sing will hold the remaining 60% in Grand Pavilion.

The cash consideration of RM63.96 million for an effective 60% stake in the land works out to RM600 per sq ft, according to back of the envelope calculations by The Edge Financial Daily, which observers noted was a very good deal for Mah Sing, especially given the lack of a sizeable land for redevelopment within the city centre.

While there have been few large transactions in the immediate vicinity of the project, it is difficult to find land priced below RM1,000 psf in the heart of the city, observers say.

The recently aborted deal between UDA Holdings Bhd and Nadayu Properties Bhd, for instance, had priced land along Jalan Sultan Ismail at RM1,400 psf.

Recent land transactions around the KLCC vicinity was transacted at between RM2,000 and RM2,600 psf, with the notable exception of the Lai Meng school land on Jalan Ampang, which was acquired by Magna Prima Bhd at about RM1,500 psf during the recent financial crisis.

Mah Sing's 4.08-acre parcel is part of the largest privatised urban regeneration project in Kuala Lumpur measuring some 58 acres that's estimated to have total GDV of RM9 billion to which Asie has been granted full rights and approvals for a mixed development. The latter comprises residential and commercial properties as well as community, leisure, recreation and infrastructure facilities on 15 parcels of development land. The land also comes with five air rights.

"The potential for this JV is good because of the 58-acre size of the whole development. We will be able to tap into that opportunity. And this land is one of the last few sizable land parcels in Kuala Lumpur," Mah Sing group managing director and chief executive Tan Sri Leong Hoy Kum told The Edge Financial Daily on Tuesday.

Under the development plans, there is also a provision for a skybridge connection from M Sentral to the remaining 54 acres. This is in line with the understanding between Mah Sing and Asie that the former may be the potential JV partner for other parcels within the land, subject to terms and conditions to be mutually agreed upon.

"We are planning the development for the first parcel as well as the overall concept for the 58 acres," Leong said.

The development has the potential of becoming a transportation hub as it is within walking distance to the monorail and LRT stations and easily accessible by public transportation, he added.

Mah Sing's share price rose four sen to RM2.44 at yesterday's close. The stock is hot on the radar of analysts as the counter has 12 "buy" calls on it.

OSK Research initiated coverage on Mah Sing late last month with a "buy" call and fair value of RM3.01 while CIMB Research recommended the stock as its top pick for the property sector with target price of RM3.30.

According to its website, Asie was established in 1977 with construction and property development as its core business. The company has been involved in other regeneration projects for the Kuala Lumpur City Hall.

Asie's shareholder is Citivest Sdn Bhd. Filings from the Companies Commission of Malaysia showed shareholders of Citivest are Abu Khalil Akasah and Nik Rahimah Wan Ahmad, both of whom are believed to be connected to the Perlis royal family.

The 4.08-acre development is subject to authorities' approval and is expected to commence by the first half of 2012 and to be developed over five years.

Currently, Mah Sing has a landbank of about 900 acres, excluding the new parcel, with estimated GDV of RM14 billion over the next five to seven years. Mah Sing, which has been aggressively growing its landbank of late with acquisitions in Jalan Ampang, Batu Ferringhi (Penang) and Cyberjaya since early this year, has a total of 34 projects in the Klang Valley, Penang and Johor Bahru.

Leong also recently said the group is looking at possibly acquiring a large tract of land of more than 1,000 acres to develop a new township, adding that it is also exploring acquisition opportunities in Kota Kinabalu, Sabah. "We are looking for landbank that can have a quick turnaround. Like this (new) one, we will be able to launch it quite fast as it is ready," he said.

The new area, more commonly known as the Pekeliling flats, is ready for immediate development as demolition works, soil investigations and partial earthworks have already been completed, Mah Sing said.

The Pekeliling flats, officially known as the Tuanku Abdul Rahman flats, were the second high-rise apartment buildings in Kuala Lumpur when they were constructed in the mid-1960s to provide affordable housing to city dwellers. After outliving their usefulness and becoming an eyesore, the flats were demolished, the settlers relocated and the land earmarked for redevelopment.

The group noted that it is in sound financial position to take on new projects. Mah Sing issued a seven-year redeemable convertible secured bonds to raise RM325 million for land acquisition two months ago. Executive director Steven Ng told the media in June that Mah Sing had cash in hand of about RM750 million.

Leong said it is eyeing more government projects, including the development of the Rubber Research Institute land in Sungei Buloh and the Sungai Besi land currently used by the Royal Malaysian Air Force.

"We are also looking at M&A (merger and acquisition) deals. We don't rule out acquisitions to play a bigger role (in property development) and enhance shareholders' value. We are keen to acquire," Leong said, but added that he could not comment on any potential deals at the moment.

"At the moment, we are looking to kick-start the first parcel first. We may be given the right to develop the other parcels in stages. We are really excited about the project and are confident that it will go well," he said.