In a filing with Bursa Malaysia on Monday, the property developer said it had entered into an agreement with Reliance Pillar Sdn Bhd and Lembaran Segimaju Sdn Bhd to acquire Tanah Tuah Development Sdn Bhd for RM57.4mil.
Sunrise will pay RM27mil in cash and make a RM30.4mil shareholders' advance to Tanah Tuah. It has paid a deposit of RM5mil.
According to the announcement, Tanah Tuah has registrable interest in a piece of freehold land within the KLCC.
“Tanah Tuah represents a good investment as the property that is being acquired by Tanah Tuah has potential to be redeveloped into an upmarket commercial development, which will further strengthen the group's presence in a prime location,” Sunrise said in the statement.
Tanah Tuah had in January agreed to buy the 1.6-acre land from the original owner for RM152mil but the agreement has yet to be concluded.
Sunrise said it had taken the necessary legal measures to safeguard its interest in the event the company's agreement with the vendors was completed before the completion of the accord between Tanah Tuah and the original owner.
Wisma Angkasa Raya, which is around 29 years old, is Kuala Lumpur’s first high-rise office building. The unencumbered property is a 24-storey commercial building comprising a 20-storey office tower and a four-storey podium with two basement carparks.
It has a total net lettable area of 167,728 sq ft and an occupancy rate of 96.4%.
Aseambankers research analyst Ong Chee Ting said that assuming Tanah Tuah had taken a 100% debt funding for the purchase, Sunrise’s RM27mil cash payment to the vendors would have raised its acquisition cost to RM179mil, or RM2,588 per sq ft.
“Even at RM2,588 per sq ft, it is considered a fair price. Assuming that KL City Hall grants Sunrise a 10 times plot ratio for redevelopment, similar to the upcoming Menara YNH in Jalan Sultan Ismail, the price per plot ratio works out to RM259 per sq ft.
“Adding RM500 per sq ft per plot ratio for the construction of an upmarket development and factoring in an efficiency ratio of 80%, the total construction cost comes to about RM1,000 per sq ft per net saleable area,” Ong said.
Given that KL City Hall has raised the plot ratio for commercial development to nine to 10 times now compared with Wisma Angkasa Raya's three times, Ong said the redevelopment could yield a gross development value of at least RM900mil.
“If Sunrise’s new property can be sold above RM1,300 per sq ft, there's still a 30% margin to be made. This translates to a development profit of RM208mil,” he said.
Ong said the risk for the redevelopment plan was a possible oversupply of new office space in Kuala Lumpur by 2010, although this risk is “mitigated by the property’s prime location''.