GuocoLand to sell Menara Guoco to Tower REIT for RM242m

The proposed disposal represents an opportunity for the group to realise its investment in the property


GUOCOLAND (M) Bhd is selling Menara Guoco in Kuala Lumpur (KL) to Tower Real Estate Investment Trust (REIT) — in which GuocoLand is a major unitholder — for RM242.1 million.

The property was completed in 2015 with a total investment cost of RM165.1 million.

The proposed disposal represents an opportunity for the group to realise its investment in the property, the company said in an exchange filing yesterday.

“It is also in line with GuocoLand’s strategy to focus on property development. GuocoLand is continuously evaluating business opportunities in the property development sector,” the group stated.

Proceeds from the proposed disposal are intended to be used for repayment of bank borrowings (RM145.34 million), working capital requirements (RM96.13 million) and estimated expenses for the proposed disposal (RM630,000).

The disposal is deemed a related party transaction, given that GuocoLand is a substantial unitholder of Tower REIT.

GuocoLand — the property arm of Hong Leong Financial Group Bhd — fully owns GLM REIT Management Sdn Bhd, which manages Tower REIT.

As at Feb 6, 2020 — the latest practicable date (LPD) prior to the announcement — the group’s total bank borrowings stood at RM1.21 billion.

Based on the weighted average cost of borrowings of 4.4% per annum, such repayment is expected to result in an annual interest savings of RM6.4 million, the group said.

Meanwhile, Tower REIT said the proposed acquisition is in line with the objective of GLM REIT Management to grow the distributable income of Tower REIT.

It will also provide unitholders with regular and stable income distributions by expanding the trust’s existing portfolio of real estate to include quality properties with stable recurring income.

As at Feb 6, the occupancy rate of Menara Guoco stood at 97.1%, which is expected to improve Tower REIT’s pro forma occupancy rate for its portfolio from 48.1% to 59.8% after the proposed acquisition.

The move is also expected to enhance the diversification of Tower REIT’s tenant base across a broader range of sectors, including multinational and established local companies, which is anticipated to contribute to the stability of the trust’s income.

Upon completion of the proposed purchase, Tower REIT’s consolidated asset base is expected to increase by 42.3% from RM572.2 million to RM814.3 million, and lower the average building age of Tower REIT’s property portfolio from 23 years as at the LPD to 18 years.

The purchase consideration will be fully funded via debt financing, which would result in new interest and principal servicing obligations.

“Where financing costs are dependent on prevailing interest rates, any future significant increase in interest rate could impact Tower REIT’s cashflows and profitability which may, in turn, affect its distributions to its unitholders.

“In mitigating such risks, Tower REIT will actively review its debt portfolio, taking into account the level, structure and nature of borrowings, and will seek to adopt cost effective and optimal mix of financing options,” the trust noted.