This article first appeared in The Edge Malaysia Weekly on March 26, 2018 - April 1, 2018

MENARA Tulus and Menara Ikhlas — two grade A office buildings in Putrajaya that are valued at RM600 million — have been put up for sale as the owner, a US-based private equity fund, has failed to repay its debt.

The Edge has been given to understand that the Precinct 3 buildings came under receivership just five years after their completion as they could not achieve the desired occupancy and yield. Menara Tulus is held by TRW Boulevard Square Sdn Bhd while Menara Ikhlas is held by Boulevard Plaza Sdn Bhd.

Documents from the Companies Commission of Malaysia (SSM) reveal that TRW Boulevard is owned by TRG Global Opportunity Master Fund Ltd (48.76%), TRG Special Opportunity Master Fund Ltd (48.76%), TRW (Asia) Ltd (2.29%) and TRW (M) Sdn Bhd (0.11%).

The shareholders of Boulevard Plaza, meanwhile, are TRG Special Opportunity Master Fund Ltd (79.14%), TRG Global Opportunity Master Fund Ltd (19.78%), TRWD Pte Ltd (1%), Cypress Pavilion Sdn Bhd (0.05%) and Kemajuan Pinggir Sdn Bhd (0.03%).

The funds are linked to The Rohatyn Group, a specialised asset management firm focused on emerging markets.

“The companies had failed to settle their Islamic financing obligation, which led to the appointment of the receiver and manager. Hence, my main role is to expedite and maximise recovery and settle the obligation,” says Ernst & Young’s Stephen Duar Tuan Kiat, who has been appointed by AmBank Islamic Bhd as the manager and receiver of both companies.

However, Duar declined to reveal the amount due to the bank, citing confidentiality.

If the data submitted to SSM is anything to go by, the bank is trying to recover as much as RM110 million from TRW Boulevard. As at June 30, 2015, TRW Boulevard’s non-current liabilities were RM109 million while the total charge created with AmBank Islamic was RM110 million.

For the second building, AmBank Islamic is probably owed between RM225 million and RM281 million based on the non-current liabilities of RM225 million and a charge with the bank of RM281 million.

As receiver, Duar has completed an independent valuation of the buildings and appointed real estate agent and valuer CBRE | WTW as the exclusive marketing agent to conduct the sale.

Duar tells The Edge in an interview that he is unable to share the valuation figures as they are confidential.

Using the non-current asset data from SSM as an indicator of the book value, as at June 30, 2015, Menara Tulus’ book value was around RM225 million while Menara Ikhlas’ was RM360 million.

CBRE |WTW managing director Foo Gee Jen provided The Edge with a similar estimate at the same interview. “We are looking at about RM350 million for Menara Ikhlas and between RM200 million and RM250 million for Menara Tulus.”

The buildings are located next to each other but Menara Tulus is closer to the National Registration Department while Menara Ikhlas is located opposite Mahkamah Persekutuan Malaysia.

“Based on the rent we are receiving, Menara Tulus gives a gross yield of 6.5% to 7%,” Foo says of the building, which is 55% occupied. The tenants include the Ministry of Primary Industries and Commodities and the Royal Malaysian Customs Department. Menara Ikhlas, which is 20% occupied, gives a gross yield of 3%. The tenants include the Malaysian Immigration Department and MyEG Services Bhd.

In the meantime, both the receiver and the real estate agent continue to seek tenants for the buildings.

Foo attributes the current low occupancy rate to each ministry already having its own building in Putrajaya. Nevertheless, he anticipates that the tenancy rate will improve. “As we know, the government has tightened its budget and moving forward, not every ministry is likely to own a building. [Thus,] Menara Tulus and Menara Ikhlas will provide an opportunity to any [government] agency to expand.” He says the buildings are in good condition and built in accordance with international standards. Interested parties have the option of purchasing both buildings or just one.

Duar and Foo opine that it would be challenging at present to build a similar building, with the same specifications, in Putrajaya, and at the price that they expect the deal to be sealed.

“The buildings offer an opportunity to investors to go in (purchase) at the near bottom of the market price,” says Foo. He adds that there are not many privately owned office buildings in Putrajaya as most are owned by Putrajaya Holdings Sdn Bhd and government-linked companies.

According to documents sighted by The Edge, the owners appear to have attempted to dispose of Menara Ikhlas for RM640 million and Menara Tulus for RM335 million in 2012 to a company called Nursi Properties Sdn Bhd, which was only set up that year.

It is unclear why the deal did not materialise but an SSM search on Nursi reveals that an official receiver had been appointed for the company in July 2013 and that it was being wound up. (Filings to the SSM ceased thereafter.)

The Edge also sighted a document which reveals that in 2008, one of the parcels measuring 3.33 acres, on which Menara Ikhlas was subsequently built, was purchased for RM350 psf or RM50.71 million.

As Duar will conduct the sale by way of expression of interest (EOI), he is not obliged to proceed with the sale but can opt to improve the tenancy and yield before putting the asset up for sale.

The closing date for the EOI is March 29.

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