Construction cranes are seen in operation around Battersea Power Station in the Nine Elms area of London, Britain, October 25, 2017. - Reuters filepic

KUALA LUMPUR: The proposed sale of Battersea Phase 2 to a joint-venture company to be formed by Permodalan Nasional Bhd (PNB) and the Employees Provident Fund (EPF) “need not necessarily be a bailout” because the two funds have deep pockets and essentially are asset managers seeking recurring and steady returns from investments, analysts said.

Two analysts, both of whom declined to be named, reckoned that the funds would get an annual yield of between 4% and 5% from the office space, but were uncertain about what the retail rental would be. Phase 2 also has 254 units of residentials, of which 90% have already been sold.

The yields are essentially in line with the general returns from new properties in the United Kingdom, considering that the cost of funds there is less than 2%.

The analysts said they expect the two developers to get a margin “in the low to mid-teens” for the sale of the commercial assets.

Last week, SP Setia Bhd  and Sime Darby Property Bhd issued separate statements on the proposed sale of Phase 2 to the two funds for £1.608bil (about RM8.8bil).

The due diligence process is ongoing and is expected to be firmed up around mid-2018.

“Whatever they (the funds) buy, if it fulfils their investment objective, can it be considered as a bailout?

“So, the price they pay must commensurate with the returns they are seeking,” the analyst said.

The yield from the purchase for the two funds very much depends on whether the commercial assets can be rented out, and at what rate, the analysts added.

Apple is expected to move there in 2021.

Phase 2 has a total net lettable area of about 1.02 million sq ft, of which about 470,000 sq ft is office space. The rest will be retail space, another source said.

The two analysts said “it is not surprising” that the two developers are selling the power station, as managing a heritage Grade II building is not their business model.

“It is not the business model of developers to hold a lot of investment properties, so it is logical for them to unload the commercial assets.

The sale will give them the cash flow they need to carry on with other phases of the project. They are not asset owners.

“Whereas PNB and the EPF have been seeking out good assets abroad to give them a recurring income,” one of the two analysts said.

The EPF has been involved in the Battersea project from the beginning with a 20% stake, with the rest equally divided between SP Setia and the Sime Darby group.

PNB is the controlling shareholder of both SP Setia and Sime Darby. By virtue of its involvement in the Battersea project via the two developers, and the EPF’s stake from the start, it is “only logical” they be given the first right of refusal.

Only funds will have the financial muscle for a deal as large as that, one of the analysts said.