IGB Corp confirms getting offer for Renaissance KL

KUALA LUMPUR (May 25): IGB Corp Bhd, which saw its latest quarterly net profit slump 20.5%, announced yesterday that it had received an offer for its 20-year-old, 910-room Renaissance Kuala Lumpur hotel, and is in the midst of evaluating the offer, confirming a report by The Edge weekly that was published on May 23.

But managing director Datuk Seri Robert Tan Chung Meng (pictured) said he is not at liberty to disclose the identity of the party that made the offer, or the price that was offered.

“We have just got an offer from a party; we are still reviewing the offer now. There is nothing to announce as we are still studying it. If there is any progress that needs to be announced, we will definitely make the announcement,” he told reporters after the group’s annual general meeting.

The weekly, citing sources, had reported that IGB Corp was in talks to dispose of Renaissance Kuala Lumpur to a Singapore company called Canali Logistics Pte Ltd for between RM750 million and RM770 million. Should the deal materialise, it would create history as being the country’s most expensive hotel transaction.

Yesterday, Tan was also asked how IGB would utilise the proceeds should the deal go through.

“If it happens, it would be good if we can put the money into Southkey (Mid Valley Southkey Megamall, Johor), [then] we don’t have to borrow so much from the banks,” he said.

Southkey is a retail mall project developed under a 70:30 joint venture between IGB Corp and Johor-based Selia Pantai Sdn Bhd. The mall is to be built on a 36-acre (11.57ha) tract and is poised to be the largest shopping mall in Johor, with a 1.5 million sq ft of net lettable area.

Meanwhile, Tan updated that IGB Corp is proceeding to build the substructure of the building.

“We estimate that it will be completed by middle of 2019. It would take about two years for Southkey to mature, before we can consider injecting it into IGB REIT (real estate investment trust),” he said.

Tan also said that “most” tenants at its Kuala Lumpur Mid Valley Megamall already expressed their interest to venture into Southkey. He added that IGB Corp will begin negotiations on the tenancy agreement for Southkey by early next year.

Yesterday, the group also announced to Bursa Malaysia that its net profit came in at RM51.81 million for the first quarter ended March 31, 2016 (1QFY16), down 20.5% from RM65.15 million a year earlier, on lower contribution from the property development and property investment segments.

Lower contribution from its property development division was also the reason why its revenue fell 16.2% to RM280.21 million from RM334.28 million a year ago.

The group said revenue from the property development division during the current quarter had dropped significantly, when compared with the same period last year, as it has yet to launch any new development projects, in view of the current weak sentiment towards the property sector.

IGB Corp said with improved performances from the property investment and hotel divisions, it is cautiously optimistic that the performance for the group for the financial year ending Dec 31, 2016 (FY16) will be satisfactory.

Meanwhile, Tan said traffic has been stronger than expected in the second quarter of 2016 (2Q16) for the group’s Kuala Lumpur retail mall operation.

“We expect visitor traffic for 2Q16 to be soft, but so far, we don’t see any sign of that. We still see year-on-year growth,” he said.

Tan said Mid Valley is currently registering an average three million visitors per month. As for 2017’s tenancy renewal, he said rental would see a “slight upward revision of 5% to 7%”.

On prospects of the group’s hotel businesses, Tan expects 2Q16 to remain soft. “We don’t see any improvement yet, so we will find ways to save costs [together with] aggressive marketing to address this,” he said.

Tan also opined that the residential property market would remain soft for the next 12 to 18 months, until Bank Negara Malaysia loosens the lending policy.

IGB Corp closed unchanged at RM 2.40 yesterday, giving a market capitalisation of RM3.2 billion.

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This article first appeared in The Edge Financial Daily, on May 25, 2016. Subscribe to The Edge Financial Daily here.