Gapurna will invest RM5bil to regenerate the old township around Sect 52 of Petaling Jaya into PJ Sentral.

AS all the details of the cash and share swap deal between Malaysian Resources Corp Bhd (MRCB) and Gapurna Sdn Bhd are being digested, the focus and questions now revolve around the development of the RM11bil PJ Sentral Garden City.

Pertinently, will PJ Sentral be able to replicate the success of MRCB flagship development KL Sentral under this current cloud of office building oversupply and competition from other mega developments in the pipeline?

Under the RM729mil MRCB and Gapurna corporate exercise, the latter will inject land worth RM459mil into MRCB in return for shares and cash.

Some parcels of the land are located in the Klang Valley as well as the PJ Sentral development.

Gapurna will invest RM5.23bil to regenerate and revitalise the old township around Section 52 of Petaling Jaya into PJ Sentral. The long-term 16ha “green” project – Malaysia’s first commercial development to be fully rated Leadership in Environment & Energy Design – is estimated to have a gross development value (GDV) of RM11bil.

The first phase, with an expected GDV of between RM2.6bil and RM3bil, would see the development of 4.8ha and comprise six commercial blocks.

As MRCB is currently not too busy with the tail-end of KL Sentral development, its involvement in PJ Sentral is a shot in the arm.

According to Zerin Properties chief executive officer Previndran Singhe, the PJ Sentral, slated to be an iconic development in the city of Petaling Jaya, will not be in direct competition with other similar mega developments that are mainly located in the city centre.

“PJ Sentral is still considered a suburban development, where it would have its own attractions and merits.

KL Sentral is an iconic mixed development and transportation hub project.

“It will have a different tenant profile, thus I am not too concerned about the competition ,” he told StarBizWeek.

Furthermore, he says most of the mega developments such as Tun Razak Exchange, Tradewinds Centre, redevelopment of Pudu Jail, KL Metropolis and Menara Wawasan are spread over a long period of time so the supply of new residential and office space to be pumped into the market will be gradual.

“Developers also need to spread their work over time due to capacity management not only financial-wise but also in the aspects of workforce and technicals,” he says.

On office building supply, Previndran says the situation is still manageable.

“I admit there is a bit of oversupply but it has not reached a glut yet,” he says.

Another property consultant says demand for grade A office units is expected to escalate in the medium- to long-term as a lot of multinational companies are looking to consolidate their regional operations in Kuala Lumpur.

Existing office space in Kuala Lumpur climbed from 76.38 million sq ft in December 2004, to 99.62 million sq ft by September 2012, according to figures from National Property Information Centre.

That works out to an average of 2.91 million sq ft while occupied space on the other hand increased by 1.95 million sq ft a year.

The office submarket, from an overall point of view, is in a state of oversupply. Nearly a quarter of total office space is vacant when a normal percentage ought to be between 5% and 10%.

Apart from this, there is 16.86 million sq ft of incoming space (under various stages of construction) and a further 5.21 million sq ft of planned supply, which is space that has been approved for development but for which construction has not commenced.

On the deal between MRCB and Gapurna, CIMB Research says Nusa Gapurna owns 40 acres of prime commercial land in Petaling Jaya.

“Of the 16ha, 4.9ha will be acquired by MRCB. Under phase one, this tract of land will be developed into PJ Sentral Garden City that has an estimated GDV of RM2.9bil.

Previndran: ‘PJ Sentral is still considered a suburban development’.

“It is a mixed development comprising five blocks of office towers, a hotel and a four-storey basement car park,” says CIMB Research.

CIMB Research says the remaining two tracts of land are located in Old Klang Road of 7.1ha with RM2.4bil in GDV and Subang Jaya of 1.3ha and RM378mil in GDV.

“Over the next four to five years, development plans will focus on the phase one PJ Sentral.

“The first launch is slated for April 13 and will target long-term anchor tenants. Overall, this acquisition will inject RM5.7bil worth of potential new GDV into MRCB.

“Nusa Gapurna has been in negotiations with potential buyers for an en block sale of one of the office towers for an undisclosed indicative price,” says CIMB.

Already, Malaysia Building Society Bhd has been reported to be buying a tower of about 30 storeys in PJ Sentral for RM239.24mil to cater for its bigger staff population and to consolidate all of its subsidiaries under one roof.

MRCB crown jewel

As far as MRCB is concerned, MIDF Research says its property portfolio, especially in KL Sentral, is depleting.

Hence, with the deal, MRCB’s landbank will increase to 83 acres from 50 acres.

“Total GDV of Nusa Gapurna’s land is estimated at RM5.7bil. Assuming the project’s duration of 10 years and a net margin of 15%, the project could fetch an average annual net profit of RM85.5mil until 2023. We believe the next MRCB crown jewel is in the PJ Sentral Garden City (it currently owns Lot 8 and Lot 12), which is planned to resemble its successful KL Sentral project,” it says.

Additionally, MIDF Research says the deal will also strengthen MRCB’s construction arm and certainly top up its existing external order book of RM1.2bil.

“Gelanggang Harapan Construction Sdn Bhd (one of the Gapurna’s subsidiaries to be acquired by MRCB) has been appointed as the main contractor for Nusa Gapurna’s property projects.

“It also has a few construction jobs awarded by third parties.

“According to the management, Gelanggang Harapan has RM3.6bil outstanding projects in its order book,” it says.

KL Sentral, the iconic mixed development and transportation hub started work in 1997 from a humble 28.8ha Brickfields railway marshalling yard site into what it is now, is spearheaded by MRCB, through a number of joint ventures.

The first phase of the KL Sentral project consists of the new KL railway station, MRCB tower, corporate suites, a hotel, condominiums, integrated retail complexes and purpose-built office buildings.

The project is owned by Kuala Lumpur Sentral Sdn Bhd, a consortium led by MRCB with a 64.38% stake, KTM Bhd with 26% and Pembinaan Redzai Sdn Bhd with 9.62%.

Kuala Lumpur Sentral, MRCB, Fraser & Neave Holdings Bhd and Centrepoint Properties Ltd of Singapore also signed an agreement to develop a retail precinct in KL Sentral.

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