MRCB on expansion drive with new township project

AFTER all the excitement over the last several years, the Kwasa Damansara project in Sungai Buloh is moving along. Last week, further inroads were made, which is a boon in view of today’s weak property market.

The first was an EGM by Malaysian Resources Corporation Bhd (MRCB). The second was the conclusion of a bumiputra tender for residential project R3-2. A third tender is scheduled to be called late next month for another residential parcel R2-1 among Tier 2 developers with shareholders’ funds or paid up capital of RM300mil and above. An announcement on another parcel is underway.

The Employees Provident Fund (EPF) is the land owner. It is also the main shareholder of MRCB. So this is a related party transaction which is of major significance in the property sector. Kwasa Land Sdn Bhd, a wholly-owned subsidiary of the EPF, is the master developer.

MRCB won the first tender last year to develop a 64-acre parcel, earmarked as a town centre for the new township known as Kwasa Damansara. However, it needs shareholders’ approval to subscribe to a majority stake in a special purpose vehicle, Kwasa Development (2) Sdn Bhd (KDSB), in a 70:30 partnership with KDSB holding the rest.

The deal will cost the property and construction company RM816.61mil but it will offer opportunities in a project which is generating a lot of attention among public/private sector, potential buyers and stake holders in Sungai Buloh and the surrounding neighbourhood.

Although MRCB received unanimous approval to go ahead with Project MX-1 at the Feb 12 EGM, shareholders had reservations. They lamented that while MRCB has successfully developed KL Sentral, predominantly offices with its core being a transit rail interchange, the popularity of that location has not been reflected in its share price. “So how will MX-1 help to lift MRCB share price?” they asked.

One of them also said the EPF seemed to be the bigger beneficiary. Other reservations include MRCB debts. The group’s borrowings would increase from RM3.51bil to RM4.25bil if the balance 90% - or RM734.95mil - of the proposed subscription were fully funded by bank borrowings. MRCB paid the first 10%, or RM81.66mil, last year.

A salient feature of the deal is a cumulative profit after tax guarantee of RM2bil, staggered over a 15-year period beginning with the first RM150mil at the end of the fifth year. In the event of a shortfall during that 15-year period, MRCB will pay KDSB an amount equivalent to the agreed shortfall as per an agreed schedule.

Azlan says MRCB is seeking strong and sustainable long term growth.

Seeking new landbank

To put things in perspective, the popularity of a site or location need not necessarily be translated into a company’s share price, just as the land a property company has need not be reflected in its share price.

The KL Sentral development has taken some 20 years. It started around the 1997/98 Asian financial crisis. Today, a large part of KL Sentral has been completed, save for a commercial parcel located opposite 1 Sentrum. MRCB plans to retain that parcel for a future commercial development.

This means the company has to seek out new land and it has set it sights on Kwasa Damansara, although it has many other projects. The up and coming Penang Sentral is one of them.

There has been much attention on Kwasa Damansara the past few years since the Malaysian Rubber Board sold the massive 2,330 acres, at RM22.50 per sq ft or RM2.3bil to the EPF in 2012.

Developers big and small have been eyeing a piece of that pie for years, simply because Kwasa Damansara represents one of the biggest property development in the country, certainly the biggest in Selangor.

The Subang Jaya township, by the Sime Darby group, is located on 1,440 acres, two-thirds the size of Kwasa Damansara.

Apart from size, developers with a piece of the Kwasa pie stand to showcase their capabilities as that site is different from other projects in the larger Klang Valley.

The rubber land is located in what a developer calls “a cowboy town in the middle of nowhere”. This means potential in terms of malls, office space, condominiums, retail, parks and other elements that go into township development.

Unlike a four-acre parcel in the city, developers will be starting with a clean slate. The size will give developers more room to manoeuvre, in terms of concept and design. These factors, and the connectivity with the Sungai Buloh-Kajang MRT line - to be completed in 2017 - are the positive contributory factors as to why that site is generating interest.

According to a Rahim & Co study, the current weakness of the site is its lack of connection. Jalan Sungai Buloh-Shah Alam is the main artery and it is “always congested,” the study says.

Coming back to MRCB, it has other pieces of land but Project MX-1, at 3% of its total 2,330 acres, is a crucial piece of the puzzle that would give it the big push it needs. According to shareholders, MRCB chairman Tan Sri Azlan Zainol told them the company is seeking “new and further opportunities” as it seeks “strong and sustainable long-term growth.” Azlan was previously EPF chief executive.

Land analysis

Shaped like an asymmetrical hour glass, Jalan Sungai Buloh-Shah Alam divides the 2,330 acres roughly into two equal portions. Project MX-1 township, which fronts this main artery, is located in the upper portion.

The focus of development will be in this upper portion. MX-1 will be served by the Kwasa Sentral MRT station, just as KL Sentral Interchanges is serving the 70-acre KL Sentral.

According to a Jan 16 MRCB circular, MX-1, to have a gross development value (GDV) of about RM8bil, will be developed in six major phases, some of them concurrently. All six phases are to be completed in 12 years.

There will be three malls with net lettable areas of about 650,000 sq ft, 300,000 sq ft and a third with 150,000 sq ft. A four to five-star hotel is being planned. The overall mix will be 60:40 with more commercial and rest residential. Shareholders brought up concerns about the current oversupply of office space in the Klang Valley.

MRCB Group chief operating officer Mohd Imran Tan Sri Mohamad Salim said KL Sentral comprises mostly office space and yet in terms of tenancy and rental, it is doing well. Condominiums, retail and shop offices make up the remaining three phases.

Although the selling price or GDV for all six phases is less than RM8bil, this is calculated at current prices and has not taken into account potential selling price, the circular says. Total GDV is expected to be about RM8bil.

Sungai Buloh is currently a light industrial area with some residentials while Kwasa Damansara is designed as “a catalyst” to stimulate economic growth, entrepreneurial activities and job creation in that area and beyond. The established townships about 10km away - Ara Damansara, Kota Damansara, Bandar Utara - and the larger Sungai Buloh will benefit from the development, the study by Rahim & Co suggests.

Just as the development of KL Sentral, formerly a Keretapi Tanah Melayu railway yard, has benefitted both Bangsar and Brickfields, much hope is placed on this massive patch of rubber trees.