Pusat Bandar Damansara deal raises Malton's profile

A recently announced pact between Datuk Desmond Lim Siew Choon's private company Impian Ekspresi Sdn Bhd (IESB) and Johor Corp (JCorp) to redevelop Pusat Bandar Damansara (PBD) could raise Malton Bhd's profile as a property developer.

In a filing with Bursa Malaysia in mid-May, Malton, of which Lim is the chairman, disclosed that it had signed an agreement with Bukit Damansara Development Sdn Bhd (BDDSB) — a subsidiary of Damansara Assets Sdn Bhd, which in turn is owned by JCorp.

Under the agreement, IESB will pay RM500 million cash and allocate office space totalling 266,668 sq ft in the redeveloped PBD to BDDSB. It is worth noting that both sides have valued the office space at RM750 psf or a total of RM200 million.

The agreement would be the third between the entities linked to Lim and JCorp on the PBD redevelopment.

Analysts are bullish on the deal and opine that it will fortify Malton's premium position in the local property development industry.

"If Malton fully owns the redeveloped PBD, it will raise the profile of the land. And Desmond Lim's experience in developing Pavilion speaks for itself. In terms of quality and design, it is at the top end," an analyst with a bank-backed research house tells The Edge.

It is worth noting that Malton is also in a joint venture with Ho Hup Construction Co Bhd to develop Pavilion 2 on 60 acres in Bukit Jalil.

According to Malton's recent announcement, IESB's preliminary plan to redevelop PBD includes the construction of five new towers — two office and three residential — as well as a suburban mall in the commercial space.

The filing, however, did not specify the plot ratio approved by Dewan Bandaraya Kuala Lumpur for the said redevelopment.

With the office space at RM750 psf, industry observers say Malton could have got a good deal as PBD is located in a strategic part of Kuala Lumpur.

"The deal has not been revised since the original JVA (joint venture agreement) in 2009. In today's terms and taking into consideration the future connectivity of the ongoing MRT (mass rapid transit) project, it could actually be worth more," the observer remarks.

Others say the deal is fair to both parties. "It's a win-win situation for both as PBD is in a prime location," Sarkunan Subramaniam, the managing director of Knight Frank Malaysia, tells The Edge.

Furthermore, the settlement received by JCorp could be used to pare down its hulking debt of RM8 billion as at end-2012.

In 2011, property valuer CH Williams Talhar and Wong put PBD's worth at RM1 billion.

Industry experts say CapitaLand Ltd Bhd and the Employees Provident Fund were rumoured to be among interested parties bidding for the land. However, no deals materialised as the bidders were put off by the hefty price tag and an ongoing legal battle between JCorp and IESB.

The 9.57-acre PBD has nine vacant commercial office blocks that were erected between 1981 and 1984.

Although the office complex is old, it is strategically located in the affluent neighbourhood of Damansara Heights and will benefit from good connectivity as two MRT stations will be built in its vicinity.

However, BDDSB has already sold 25 parcels within PBD. They include a HELP University campus which is situated beneath the complex, and the adjacent car park, both of which belong to Selangor Properties Bhd.

The owners of the 25 parcels could give Lim a headache if they prove unwilling to cooperate in the redevelopment of PBD. However, Sarkunan believes they will lose out if they resist Lim.

"The owners of the 25 parcels, if they are smart enough, should enter into an agreement with Malton as it will increase the value of their asset. They will probably play ball, otherwise they will be on the losing end. Take KL Plaza. Look at how Pavilion has managed to elevate it to what it is today," remarks Sarkunan. The other property owners in the complex should be part of the gentrification of PBD, he adds.

According to a recent announcement by Malton, the 266,668 sq ft of office space will be split into portions of 186,667 sq ft and 80,000 sq ft. In the first portion, Khuan Choo Property Management Sdn Bhd (KCPM) — a wholly-owned subsidiary of Malton — will allocate a 20-storey office building known as V Square, valued at RM140 million, to BDDSB. V Square has a net lettable area of about 163,504 sq ft. The 80,000 sq ft will be delivered to BDDSB within five years of IESB acquiring PBD.

Interestingly, the announcement made no mention of the legal battle between JCorp and Lim's entities. The suit is over a JVA that was rescinded after former Johor menteri besar Tan Sri Abdul Ghani Othman took on a more active role in the state.

According to the JVA dated Jan 7, 2009, JCorp supposedly agreed to sell PBD to IESB for something like RM700 million. IESB was to redevelop PBD and a piece of land in the vicinity. As compensation, BDDSB was to receive RM500 million cash and either 500,000 sq ft of office space in the newly-developed PBD and adjacent land or, should the office space be restricted to PBD, office space equivalent to RM200 million.

However, on Jan 31, 2011, Damansara Assets signed a supplemental agreement with IESB to amend and add additional terms to the original JVA.

In the supplemental agreement, both parties agreed that the terms of the JVA had not been fulfilled and IESB was given until Feb 28, 2011, to do so.

Also, KCPM, Malton and Pembinaan Gapadu Bhd agreed to execute a sale and purchase agreement (SPA) to dispose of V Square 1 and V Square 2 — valued at RM200 million — to Damansara Assets as outlined in the JVA.

But as the terms were not met by the Feb 28 deadline, the SPA was not carried out and the disposal of the said investment land was cancelled.

On Nov 25, 2011, IESB, KCPM and Gapadu filed a lawsuit against Damansara Assets and its associate companies on charges that the latter had failed to fulfil terms in the JVA and supplemental agreement.

IESB claimed damages totalling RM67.63 million, which included 10% or RM50 million of the agreed cash it had agreed to under the JVA.

In its 2012 annual report, JCorp noted that the proceedings were set for April 30 this year. However, the company has made no formal announcement on the hearing. The only announcement has been by Malton on the signing of the third supplemental agreement.

This story first appeared in The Edge weekly edition of May 20-26, 2013.

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