KUALA LUMPUR (Aug 23): Sime Darby Property Bhd (KL:SIMEPROP) expects a higher occupancy rate for Phase 3B of Battersea Power Station in the UK at between 50% and 80% by next year, from 20% currently.
An increase in the occupancy rate would also help blunt the impact of an accounting rule that dragged on Sime Darby Property’s results for the second quarter ended June 30, 2024 (2QFY2024), group managing director Datuk Seri Azmir Merican said at an earnings briefing. The impact will be lesser going forward as well, he said.
“We are seeing encouraging signs of improvement, especially with the recent UK rate cut,” he said.
The accounting impact of a rule under the International Financial Reporting Standards, or IFRS, led to a larger share of joint-venture loss amounting to RM87.9 million for 2QFY2024, compared with RM21.9 million a year earlier.
The bulk of losses due to accounting impact was based on assumptions of future cash flow projections for the entire contract period, subject to ongoing assessment.
“We do not foresee any major impact for this year as we have done it now,” Azmir said. “If there is an impact, it will be much smaller than what we are [having] today.”
Battersea Power Station is a prime development owned by a Malaysian consortium that also includes S P Setia Bhd (KL:SPSETIA) and the Employees Provident Fund (EPF). Sime Darby and S P Setia each own a 40% stake in the mixed-use project sprawling 17 hectares, while the EPF holds the remaining 20%.
Built in the 1930s and shut in 1983, Battersea Power Station became famous after being featured on Pink Floyd's album cover, and its distinctive chimneys made it a landmark in central London.
The site, however, was also known for several redevelopment failures before the Malaysian consortium took over the property through a competitive tender process for £400 million (RM2.29 billion) in 2012.
In April this year, Battersea Power Station completed a sale contract for 50 Electric Boulevard in Phase 3B, including a rental guarantee for the first five years of the contract period from April 2024 to March 2029.
Battersea Power Station is entitled to a purchase price adjustment at the end of the fifth year, according to Sime Darby Property group chief financial officer Betty Lau Sui Hing. The rental guarantee and the potential price adjustment mean the contract falls under the scope of the IFRS 17.
“The IFRS17 required the full financial impact to be recognised in 2QFY2024 for the entire contract period at the inception,” Lau explained.
“The assessment made in 2QFY2024 will only materially move in future periods if there are significant changes to the occupancy rate or discount rates as a result of macroeconomic conditions,” she added.