By Lim Sian See
I was surprised at Tabung Haji’s (TH) visible disappointment that due to negative perceptions and to prevent from being maligned by being linked to 1MDB that TH is forced to sell the TRX land which they purchased at RM188.5mil.
It seems that the team in TH has been working on this TRX deal since April 2013 and projected 9 percent per year return from this project – much higher than their internal benchmark of 6 percent.
By law, TH has to allocate about RM8 billion or 20 percent of its total funds to property and this TRX serviced residence project in the most strategic area of the upcoming KL Financial district and nearby to the HSR and MRT would have been attractive.
If you look at their deals in UK, you will understand.
In April 2014, TH purchased Unilever House, London for £75.8mil (RM428m), reflecting a net initial yield of about 6 percent.
Their other two UK investments are 151 Buckingham Palace Road for £205mil (RM1.14 bil), reflecting a yield of 7 percent and 10 Queen Street for £165mil (RM915mil, giving a yield of 5 percent, read more at http://tinyurl.com/polx72v
Having a serviced residence right in the heart of the KL financial district is also synergistic to TH as they already have a TH Hotel & Residence Sdn. Bhd. that is already running multiple serviced residences throughout Malaysia. More details can be read via http://thhotels.com.my
Occupancy from foreigners would also be assured since TRX is near to the proposed KL-Singapore High Speed Rail and is the financial center.
Based on TH’s leaked investment papers, they calculated the construction cost for the 40 storey serviced residence would be RM462 mil – adding the land cost of RM188.5 mil would give total cost price of RM650.5 mil.
TH’s own calculations stated that they believe that the built-up price of the units is at RM1,700 psf – hence giving a total completed value of RM825 mil – a gross Return On Investment (ROI) of 27 percent over 3 to 4 years – or 9 percent per annum over 3 years or 7 percent over 4 years – this is already higher returns than TH’s other property investments.
TH told the press yesterday the return was 9 percent per year – hence it seems they were targeting 3 years period.
However, in a recent news article (http://tinyurl.com/nnefbpv), it was reported that serviced residence prices in nearby KLCC already reached RM3,000psf built-up and there are many recent developments that have sold out at between RM2,400 to RM2,800psf.
KLCC is a glamour place and deserves a premium but it also has many many apartments and serviced residences around there already.
Whereas in TRX, there will be a financial capital near to the High Speed Rail and TH’s property will be next to a 74 storey signature tower and there is still a lack of residences around there – hence if branded properly, TH can possibly approach KLCC prices (KLCC is not that far away anyway) and reap even higher returns than 9 percent per annum.
Based on my calculations (picture), if the price was RM2,000psf, RM2,500psf or even RM3,000psf, TH’s yearly returns would have been a staggering 16 percent, 29 percent or even 41 percent!
Oh well, the above is now history and we can understand TH’s disappointment and anger and why there are no lack of ready buyers willing to take over from TH straight-away and even willing to pay TH an immediate profit. http://tinyurl.com/ovv2bet