This article first appeared in The Edge Malaysia Weekly on July 12, 2021 - July 18, 2021

IN an unexpected move, Media Prima Bhd recently announced that it would be buying back Balai Berita — its headquarters in Bangsar — from PNB Development Sdn Bhd for a total of RM156.4 million.

This comes a short three years after Media Prima sold the Bangsar property to PNB for RM118.7 million and entered into a leaseback exercise with the asset manager, which allowed the media group to continue occupying the premises after the disposal.

Nevertheless, the repurchase will come at a steep price, given that Media Prima would be paying PNB RM37.7 million more to repurchase Balai Berita.

Observers and analysts are divided on whether the move is wise as Media Prima’s initial reason in 2018 for selling the property, together with another piece of land in Shah Alam, was due to financial constraints.

Although the media group recently returned to the black, others are stumped that it would be prepared to pay an additional 31% for the property in such a short period of time.

Is the land worth the premium?

Putting that aside, one would be able to see the allure of the Balai Berita property, which is located in Jalan Riong, Bangsar. For one, Balai Berita has historic value in the Malaysian news landscape as the New Straits Times Press had made it its base since 1973.

Furthermore, the Bangsar address is much sought after as it is located a stone’s throw from the city centre. It also has the benefit of being connected to many other areas in the Klang Valley.

While there is no like-for-like comparison available, listings on Edgeprop.my of Menara Mutiara Bangsar, which is within walking distance of Balai Berita, puts its value at around RM590 per sq ft for a 1,000 sq ft office space.

In a July 5 report, Hong Leong Investment Bank (HLIB) Research observed that the acquisition of UOA Corporate Tower — about seven minutes’ drive from Balai Berita — by UOA REIT in September 2020 was done at RM729.30 psf. However, UOA Corporate Tower is a grade A MSC building that is situated in Bangsar South, the research house pointed out.

Based on transactions in the surrounding area, there is no question that Media Prima is paying a high premium to repurchase Balai Berita at an implied land cost of RM1,000 psf.

While some may see prime land in Bangsar where Balai Berita is located as having potential for redevelopment, Media Prima appears to be thinking of the long-term plan for its media business.

In its announcement, the media group said that the purchase would provide long-term security for the group’s operations. Balai Berita currently houses the company’s corporate headquarters and the offices of its subsidiaries.

“The group intends to invest in new studios to cater to growing content production requirements and consolidate Media Prima’s news gathering operations … The new studios will also complement the group’s existing studios,” it said.

Under the leaseback arrangement with PNB, Media Prima is paying rental of some RM720,000 per month, which some parties believe could increase if the leaseback agreement that is set to expire this year is renewed.

Media Prima rationalises that acquiring the property will also mitigate against the risk of a potential increase in rental rates and the loss of right of use of the property.

HLIB Research said that the media group’s decision to acquire the Balai Berita land could indicate that it is now more confident of its financial position and that it believes its earnings are now more sustainable.

“Its earnings position is also now in a much better position than what it was in FY17-19, where it posted core losses. Besides that, the company is also looking forward to its future growth by investing in new studios to develop its content production segment.

“The implied rental savings yield by purchasing the said properties is 5.5% which, safe to say, is higher than the return on cash in this current low interest rate environment,” observed the research house.

However, CGS-CIMB Research takes a more cautious view of the repurchase. It points out that the amount of savings from the rental commitment that can be ploughed back to boost its future profits is still an uncertainty.

“If Balai Berita is depreciated using the straight-line method over 99 years, the depreciation value per annum will be RM1.6 million. And depending on how much of the purchase price will be financed by bank borrowings, the interest cost will range from RM3.1 million to RM7.8 million at an interest rate of 5%, if Media Prima borrows to pay 40%-100% of the purchase cost,” it said.

The research house worked out that additional expenses for the group could amount to between RM3.6 million and RM7.1 million.

Moreover, it noted that new studios could further add to capital expenditure and depreciation, taking the view that the net profit accretion from buying Balai Berita would be minimal.

Over a one-year period, Media Prima’s share price has increased threefold to 48 sen at the close of last Wednesday, which translates into a market capitalisation of RM504.7 million.

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