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Saturday, August 28, 2010

YTL Land going global

The Cameron Highlands Resort is one of the pieces of real estate owned by Tan Sri Francis Yeoh.

TAN Sri Francis Yeoh has great entrepreneurial spirit and is fully behind the Government’s plan to improve the country through innovation and technology.

“I think of blue ocean projects. But what was previously blue ocean has today become a must-have,” Yeoh says.

Blue ocean business strategy refers to strategies that an organisation undertakes by creating new demand in an uncontested market space.

“Whatever we do since 1955 have elements of blue ocean, be it the low-cost apartments or otherwise. If we are to build a population for the future, we will not build small five-storey walk-up apartments of about 600 sq ft and have a family of seven living in them. We are condemning them to a social slum (if we do that),” he says.

Whether it is WiMax, or plain bricks and mortar, Yeoh carries with him this big picture of what he wants to do.

Besides wiring up the nation of some 26 million, one of the must-haves that he would like Malaysia to have is that fast train connecting Malaysia with Singapore.

Yeoh believes that the connection will help to close the gap of property prices between Singapore and Malaysia.

“We have the most ‘unappreciated’ real estate. We have been very profitable in Singapore and I am not going to wait around wishing for property (prices) to go up (here),” he says.

He has indicated that he will wait for prices to improve when asked about the lack of activity in Sentul, a nearly 300-acre site the group has undertaken to develop over a 10-year period since early this decade. The last launch in Sentul west was The Maple in 2003.

The award-winning Tanjong Jara Resort with its two swimming pools.

Real estate aspirations

The group unveiled the redevelopment of the Sentul area in late-1990s, after it took over the project from Taiping Consolidated Bhd and renamed it YTL Land & Development Bhd. The plan was to redevelop Sentul and improve its connectivity with train services.

Although property prices have doubled in Sentul and in Pantai Hill Park in the Kerinchi area in the secondary market – YTL Land is developing in both areas – Yeoh is comparing property prices here with other countries in the region where prices have escalated much faster.

Like other Malaysian developers who have developed properties in Singapore, he has found the trip “very profitable.”

To take advantage of buoyant property prices in the region, Yeoh wants YTL Land to go global by leveraging on the expertise of YTL Corp Bhd. Already, YTL Land will be developing Singapore’s Sandy Island and Kasara villas in Sentosa Cove and redeveloping Westwood Apartments on Orchard Boulevard.

YTL Land’s global forays are part of its current ongoing restructuring exercise.

“By the end of this year, YTL Land will become global, with a global CEO to run it.

This will change the whole dynamics of YTL Land,” he says.

Other than in Singapore, YTL Land will also be building a US$100mil (RM338mil) boutique resort on its Koh Samui land in Thailand. That is due to open next year.

“Koh Samui will be the Mediterranean of the East. We will build hotels on the extra Koh Samui land,” says Yeoh.

The restructuring of YTL Land follows the recent consolidation of the group’s hospitality and commercial assets under its two real estate investment trusts (REITs).

The REIT thing

On a current international branding exercise, Yeoh has put his hospitality and resort assets under the Malaysia-based Starhill REIT while Starhill Global REIT (SGREIT) groups his retail malls.

Besides the group’s interest in Singapore’s Wisma Atria and Ngee Ann City, SGREIT also has interest in Japan, Australia, China and Malaysia. With him at the helm, SGREIT has expanded to cover 13 properties worth S$2.6bil in five countries.

His aim is to establish SGREIT as the main YTL-linked vehicle for ownership of prime retail and commercial properties in Asia Pacific.

Starhill REIT will be the country’s first hospitality and resorts trust with assets in Malaysia and abroad.

Starhill REIT has a market capitalisation of US$289mil as at February this year and a portfolio value of US$443mil as at June last year.

The Singapore-based Starhill Global REIT has a market capitalisation of US$747mil as at February this year and a portfolio value of US$2.1bil as at February.

He has injected Niseko Village, which he recently bought for about RM205mil, into the Starhill REIT. The 617-ha ski resort is in Hokkaido, Japan.

He also has The Muse Hotel in Saint Tropez, France which, soon after its relaunch, has become one of Europe’s 20 most popular new hotels. He bought that for between 20 million and 30 million euros.

“Niseko will be the Aspen of the East. We bought into Saint Tropez in France because we wanted to take a French brand back to Asia. St Tropez will be the window to (our assets here),” says Yeoh whose assets, besides Wessex Waters in Britain, tend to concentrate in Asia. He has The Chedi, a resort in Phuket.

He may soon be an acquisition trail globally for real estates.

On the home turf, he already has some award-winning real estate. This includes Pangkor Laut Resort, Tanjong Jara Resort and Cameron Highlands Resort. His hotel brands are Ritz-Carlton, Spa Village, J W Marriott and The Majestic in Malacca.

The group also has Malaysia’s fastest growing cement company in the country. It is the first ready-mix concrete company and the second largest cement company in Malaysia with annual production capacity of 6.1 million tonnes.

YTL Cement has regional expansion plans and is evaluating investment opportunities in Indonesia and China. In 2008, it acquired 100% of China’s Zhejiang HangZhou Dama Cement.

By The Star

Discovering the true value of YTL

It’s an oft-told story about how YTL Group managed to stay resilient during the Asian Financial Crisis even as many large corporations became casualties of the crisis buckling under debilitating debt. That story, more often than not, is narrated by no less than the group’s chief steward Tan Sri Francis Yeoh.

It’s about how the group, by sourcing funds locally and borrowing in ringgit (as opposed to US dollar, which most businesses had done), had managed to fend off the heat of the crisis. So, while so many companies fell off the corporate sidewalk, YTL, armed with an enviable war chest of cash, went trawling to buy up assets on the cheap. Lest we forget, that’s how he scooped up UK’s major sewerage and water specialist Wessex Water over a decade ago, which today is one of its prized assets.

He also frequently enthuses over the level of service provided by the leisure and hospitality group under his stable; how guests are pampered by first class services at third world prices.

But over the years, the lingo has shifted somewhat towards blue ocean strategy and technology. Understandably, Yeoh is passionate about WiMAX 4G and how the offering will change the way consumers think, work and play. That is the group’s new playground. If executed to plan, it could just be the group’s next great feat.

“This is a new business and a very important business (telecoms),” says Yeoh, YTL Corp’s managing director.

YTL Corp Group is today largely an infrastructure player with 12 million customers with businesses spanning three continents. It has five listed companies, excluding the REITs, within its stable and for the first time in its corporate history, revenue reached a whopping RM16bil. Net profit was RM873mil for the full year ended June 30, 2010.

This is a blue chip group with a market value of some RM34bil. Combined, the group has assets worth RM45.4bil and a war chest of RM12bil cash.

Yet investors’ response to YTL Corp appears to be lukewarm at best.

“I don’t have a Buy call on YTL Corp and I think at the current price it is fairly valued. It is not as sexy a story as its power and water units. But it does have stable earnings and dividends given the layers of profit and cashflow from its units,’’ says an analyst. On Friday YTL Corp shares closed one sen lower to RM7.44.

The new frontier

The transformation is already in motion. The group prides itself for adopting the blue ocean strategy – which means going where none of their competitors have ever been. As a result, it has a lot on its plate going forward.

WiMAX, for now, appears very much on the priority list of the group’s next frontier.

“It is a very big thing, the public will gain and the nation will change when we take it to town in November. The other telcos will have no choice but to be fully immersed in 4G. 4G is coming, it is a challenge and it will be fantastic,’’ says Yeoh.

Shake the market and set new benchmarks, it definitely will. YTL is using Malaysia as the test bed for WiMAX 4G. If it gets it right, the model will be replicated elsewhere across the globe. That would make it the biggest player ever to deploy WiMAX extensively.

“Partners will come to us once we prove it’s successful. I am sure all of the Asean countries (will come) and we will also get invited to expand. Our global footprint will grow and that is the kind of growth targets (we are looking at),’’ he adds.

It is not just the voice, data, video and mobile business that the group has the potential to be involved in but the whole gamut.

The World Bank conducted a study last year on the impact of broadband on the economy and found that every 10% penetration growth in broadband creates a 1.38% corresponding GDP increase in developing countries.

“Every thing that we do from 1955 (since the group’s inception) has been based on the blue ocean strategy. This is our biggest initiative,’’ he says.

The involvement in WiMAX 4G presents a perfect picture of its involvement in the utilities sector.

Besides 4G, there are areas in the water and energy business that the group wants to expand into.

The journey

The group’s history dates back to 1955. It started as a construction company, building low-cost apartments to pioneering high-rise construction. Back then, the group needed to arrange financing for these apartments.

It was the expertise and use of technology that thrust them to the forefront of construction and YTL became the first turnkey contractor in the country. Yeoh says they were the envy of the Japanese contractors, who took three weeks to complete a floor of a building while YTL only needed seven days.

“The secret was really in the continuous pouring of concrete to hasten the process,” he says.

The KL Tower which stands tall today in the city’s skyline is a product of continuous pouring of concrete, hence its early completion. YTL had the foresight to own a cement plant that helped them manage cost.

The going was extremely good for the construction business. Then the group got another break in the early 90s following the nationwide blackout. That marked their first step into the lucrative utility sector. YTL was the first independent power producer (IPP) and managed to build a plant in a record time of 14 months. But this happened in juxtaposition, with the vociferous criticism that the IPP awards were not given out on open tender basis and the rates were unseemingly high, placing the national utility Tenaga Nasional Bhd at a great disadvantage given its high payouts to the IPP for power generation.

To fund the plant, the group opted to issue ringgit-denominated bonds, which was frowned upon by some.

“Nobody then wanted to listen to us but we believed that Asian infrastructures should be funded by their own savings rate. Asians are savers, why should we borrow from outside?’’ he says.

Over the years, the group has managed to strengthen its portfolio in the utility segment, adding more power plants such as PT Jawa and Power Seraya Ltd. Its generation capacity has grown many-fold from 1,000MW to 4,315MW. It has also gone into the power transmission business with a 33.5% stake in Australia’s ElectraNet.

An opportunity to own water assets came with Wessex Water in 2002. It was a major coup to own a British company then. From then on, there was no stopping for this group which grew and spread its wings via acquisitions.

But as Yeoh puts it: “All that is history, let’s talk about the future.’’

IPPs a ‘jurassic model’

Abundant opportunities in the water and power sectors in Australia, Britain and Asia are currently beckoning. “We want to play a bigger role where the future is brighter,’’ he says.

Regulatory frameworks are changing to open up markets for competition and allow more players to participate so that there are choices; with competition, the cost of services for end users generally come down.

“The chances of Asia going that way is better,’’ he adds.

An analyst says until and unless the group acquires more assets there is not going to be a big jump in earnings. The talk is that they are eyeing water and energy assets in Asia and given the big war chest of cash it has it should stock up sooner than later.

“They are actively looking for power and water assets in the region, it would be the regulated ones,’’ says an analyst.

Yeoh feels the era of IPP is over. He calls it a “jurassic’’ model to create a power plant to serve only one customer.

“We trade energy, we produce and sell power. We are no longer an IPP and we believe the IPP business is over. We also think there should be no more IPPs,’’ he says.

His belief is that governments should do away with monopolies and introduce competition, allow the players to compete to supply power to the grid.

“Anyone can be a power producer and supply to the grid and that will create competition and allow consumers to chose the cheapest source of power,” he says. Whether this formula is workable remains to be seen but his rationale is that if Singapore can, why not Malaysia?

“If there can be competition in the water and telecoms sector, why not introduce it for the power sector (to make players more efficient)? It is better for the public as they will have choices,’’ he says.

“We want to cut a bit more in power business. We want to be a total energy power player.”

On high speed

The mere mention of the proposed KL-Singapore high speed rail link excites him. He is not ready to give up on his proposed project although things have been pretty quiet at that end. If the project sees the light of day, he says, it would create value not just in property but also spur economic benefits at both ends – Malaysia and Singapore.

“I always believe that if people want it, it will happen,’’ Yeoh says.

The group’s hospitality business has grown with recent acquisitions and the creation of REITs.

And don’t rule out more assets coming into this stable. The group bought The Muse Hotel in Saint Tropez in France, which has become one of Europe’s 20 most popular hotels, the Niseko Village – a ski resort in Hokkaido, Japan that has become the Aspen of the East, and Pangkor Laut Resort in Pangkor is another internationally acclaimed resort.

“We have a global footprint on hotels and we are profitable,’’ he says.

Somehow, the visible success in most of these businesses has yet to reflect on the group’s massive property project in Sentul – Sentul East and West. Toss out all the hype and brouhaha and it would seem as if the project is not moving as fast as expected.

Yeoh puts the blame on real estate valuations, which is rather modest compared to Singapore and Hong Kong. He hopes prices will eventually appreciate but that appears a tough task for the time being

“I am waiting for KL to be a very attractive capital,’’ he says.

The true value

With wings spread across several continents and several key businesses abroad, the company could well be a Malaysian multinational. But it faces its fair share of challenges – regulatory hurdles abroad plus geo-political and currency fluctuation issues. Having staunchly adopted the blue ocean strategy, Yeoh says, competition is by no means to be feared. In fact, it is very much ingrained in the group’s DNA.

As it stands now, succession planning is very much in place for the group. The next generation of Yeohs are already learning the ropes from the seniors. In fact, for this interview Yeoh’s son Joshua was present throughout to prep himself up for similar sessions in future. “That is part of the training,’’ says Yeoh.

The circle of family business, it appears, is very much intact. For YTL Group, it is on to being driven by the third generation. But there’s no doubt that till then, Yeoh still has a lot that he wants to do first.

By The Star

The need for affordable housing to meet demand

Rising worries over the escalating cost of living and prices of goods and services has become a hot topic among the average Malaysians these days with one of their major concerns centred around the removal of subsidies by the Government.

Their concerns are understandable as the threat of a looming inflation will further constrain the people’s purchasing power.

If prices continue to rise, very soon those who now fall under the middle-income group will find themselves “demoted” into the lower income category as the value of their ringgit shrinks.

No wonder people are taking stock of their financial position and have become more vigilant over their spending. Even the more upmarket and usually packed “buka puasa” restaurants are reporting slower business this time around.

However, the strong sales of big ticket items, including residential property and cars, show that despite their relatively high price tags, owning a house and a car are considered priorities for the majority of the populace.

In particular, demand for houses has skyrocketed in the past year and this has contributed to a sharp rise in prices.

Meanwhile, supply of houses has not caught up as fast and this has resulted in a market in equilibrium where demand still exceeds supply.

Although developers are expected to speed up on their new project launches to take advantage of the strong sales, how fast the “production line” moves will depend on the speed of the approval process at both the state and federal government levels.

Hopefully the one-stop centres (OSCs) in local authorities to consider building and development project applications are playing their roles well to ensure developers who abide by all the rules and regulations will have their building approval process expedited.

It is not unusual to hear developers still lamenting about delays at some of the local authorities which have hampered their project development time-lines.

In keeping with the spirit of the Special Taskforce to Facilitate Business (Pemudah), any unnecessary red tapes and bureaucracy should be reduced if not eliminated completely. By enhancing the market’s efficiency, it will overcome the housing supply shortage and help promote a more balanced and equitable market.

Given the strong demand for houses, this is in fact a good time for the state governments to direct their state development agencies (SEDCs) that are entrusted with building affordable housing projects for the low to middle income groups to uphold their duties diligently.

Their primary role is to undertake social and economic projects that help the lower income population. Thus, enabling more Malaysians to own houses.

Instead of competing with the private developers by getting involve in high-end property projects which are out of the reach of the average Malaysians, they should offer more affordable priced houses within the price range of between RM200,000 and RM400,000.

In view of the strong interest for landed housing these days, these SEDCs should launch more lower to medium-priced landed residential projects.

Many of the SEDCs have very prime landbank but on many occasions in the past, they have taken the short cut of selling these land to other developers instead of undertaking the projects themselves or through joint ventures.

In keeping with their social-economic roles to help the less privileged, these agencies should develop their land with a social conscience to help the people.

To attract the targeted buyers, their projects should be well planned and located in good locations with good infrastructure connectivity.

As part of their corporate social responsibility, private developers can partake in such projects by forming joint ventures with the SEDCs to lend their expertise.

Although their interest has shifted to the higher-end range of products, developers should also maintain a more balanced product portfolio with an array of low-medium to medium and higher priced projects.

Given the power of “word of mouth” in building a company’s image, developers who show they care for people’s welfare will be better appreciated and have a stronger customer following in future.

Deputy news editor Angie Ng hopes more concerted efforts will be expended to provide for more quality and affordable housing in our cities as a wholesome living environment for the people is a pre-requisite for a safe and progressive Malaysia.

By The Star

An upside in the office market

A drop in the capital value of office buildings from their previous highs is attracting higher interest among investors looking for potential value upside and good rental income streams, say property consultants.

According to CB Richard Ellis Sdn Bhd executive chairman Christopher Boyd, the value of office buildings has fallen by an average 10% to 15% from their absolute highs around mid-2008 and this offered potential for capital upside.

“It is more a seller’s market right now as there is not enough investible buildings around to meet demand. Given the lower entry cost, demand is getting stronger especially for office buildings that are well managed and located, have high occupancy and offer good yields,” Boyd tells StarBizWeek.

If the rising demand continues and the country’s economic recovery is sustained, he expects further upside in the office market.

“I believe with the right planning, the office market can be easily well balanced in terms of supply and demand,” he adds.

Office transactions between March and June included the sale of two office buildings by UOA Holdings to UOA REIT. Wisma UOA Damansara II, which has net lettable area (NLA) of 297,000 sq ft was sold for RM211mil, and Menara UOA Bangsar (Parcel B), with NLA of 312,000 sq ft was sold for RM289mil.

During the quarter, Menara Olympia was sold for RM200mil while Wisma Time was transacted at RM78mil. The latest sale involved that of Menara Pan Global which exchanged hands at RM160mil last month.

“The outlook for en-bloc sale of office buildings will still be good as investors are looking to lock in at the current lower asking prices,” says Boyd.

Even so, in its latest Kuala Lumpur office property market report, CB Richard Ellis said another 1.7 million sq ft of office space are scheduled to be completed in Kuala Lumpur by end-2010.

These include Hampshire Place Corporate Office Tower and Menara Worldwide, Capital Square Office Tower 2, BRDB Office Tower, BZ-HUB @ One Mont’ Kiara and Menara Ireka @ One Mont’ Kiara.

With supply projected to increase at an accelerated rate from the second half of this year, office rents are not expected to show any significant increases over the coming months.

The situation is expected to prevail until 2013.

“We estimate another 3.5 million sq ft of office space will be completed in Kuala Lumpur next year and 4.9 million sq ft will come on-stream in 2012. There are also numerous projects in the planning stages, accounting for at least 11 million sq ft. Whether or not a large portion of these projects go ahead as planned will have a profound effect on the city’s office market from 2012 onwards,” it said in the report.

Meanwhile, KGV-Lambert Smith Hampton Sdn Bhd director Anthony Chua says most of the recent office transactions were for second grade buildings that were quite old and located in less prime locations.

With proper upgrading and refurbishment, the buildings will be able to command quite good rental rates for the new owners.

“Although the office market is generally still quite soft in terms of occupancy and rental, it is a good time for investors to shop around for some opportunistic buys to position themselves for a market upswing in the future,” says Chua.

In addition, owners of office buildings who are looking to cash out may be willing to consider selling at more reasonable prices.

Knight Frank Malaysia executive director Sarkunan Subramaniam points out that there are a number of secondary buildings up for sale at between RM350 and RM600 psf.

Meanwhile, Grade A office buildings have price tags ranging between RM800 and RM1,200 psf.

“There is always demand for good office buildings – if the price is right and where there are opportunities to upgrade for value enhancement. Such transactions have become more palatable after the asking prices dropped from their previous highs,” he elaborates.

City Valuers & Consultants Sdn Bhd general manager CY Lim concurs that well-tenanted buildings are still in the radar screen of potential buyers, especially for their rental streams: “The cash flow from office buildings is dependent on the occupancy and rental rates. Of course one also has to consider the capital value of the property and whether it has potential for appreciation.”

By The Star

RM300m properties sold at expo

Over RM300 million worth of properties were sold at the sixth Expo Luxury Collection 2010 recently.

Organised by Malaysia, the expo showcased some of the world's most luxurious property developments and resorts at the prestigious Kuala Lumpur Convention Centre from July 30 to August 1.

The record expo sales figures are testimony that the appetite for properties remained strong, Malaysia said in a statement in Kuala Lumpur yesterday.

"The record sales made at the show are testimony that our property exhibitions continue to deliver results while providing an opportunity for developers to connect with property hunters," chief executive officer of group Shaun Di Gregorio said.

One development that stood out was Acmar International's D'Rapport Condo in Ampang, where an estimated RM180 million worth of registered bookings were made over the three days. The 80 units reserved were priced between RM1.6 and RM5.5 million and were not due to be launched officially until September.

Spanning a space of 6,000 sq m, the expo was the biggest property exhibition ever held in Malaysia.

By Bernama

UEM Land Q2 earnings up more than sixfold

UEM Land Holdings Bhd, a property developer, said second quarter net profit jumped more than sixfold to RM40.3 million, mainly due to gains from its disposal of Touch 'n Go Sdn Bhd.

The company made a gain of RM25.6 million from selling its 20 per cent stake in Touch 'n Go to PLUS Expressway Bhd for RM33.4 million. The disposal was completed in June this year.

During the quarter ended June 30 2010, the company's revenue grew by 28 per cent to RM88 million, partly driven by higher sales of its industrial land in the Southern Industrial Logistic Clusters.

UEM Land believes it is able to achieve its headline key performance indicators (KPIs) set for this year, which includes an annual revenue growth of 35 per cent and return on equity of 6 per cent, backed by improvement in the property market.
"The group is confident that the property market will continue its recovery in line with the encouraging gross domestic product (GDP) growth achieved by the country for the first half of 2010.

"The property market in Johor generally, and Iskandar Malaysia specifically is expected to further benefit from the recent increase in interest from Singapore.

"We expect the group to benefit from this positive sentiment and will continue to launch new residential projects in Nusajaya, as well as launching new phases of our existing residential projects in Nusajaya and Cyberjaya in the coming months.

"The Group will continue to evaluate opportunities to acquire strategic land parcels outside Nusajaya to expand and grow our business to create sustainable return on investment for our shareholders," it said in a Bursa Malaysia filing yesterday.

The company's share price on Bursa Malaysia declined 4 sen, or 2.38 per cent, to RM1.64.

By Business Times