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Saturday, November 13, 2010

Mulpha's embedded values

An aerial view of Sanctuary Cove, a resort-styled property development by Mulpha.

PROPERTY developer and investment firm Mulpha International Bhd (MIB) has come to be better known in Australia than in Malaysia, says its executive chairman Lee Seng Huang.

"Due to the quality of our assets Down Under, we are better known in the financial and property circles there," he says in a recent interview with StarBiz.

"In Malaysia, MIB suffers from legacy issues and is still perceived by some as being a trading company. But we have moved on to be a regional player. MIB is the largest Malaysian property player in Australia today," he says.

MIB's Aussie property portfolio (owned by its wholly owned subsidiary Mulpha Australia Ltd) is today worth around A$1bil (RM3.1bil), says Lee. The prized assets include a few five-star hotels such as the InterContinental Sydney, a resort-styled property development called Sanctuary Cove in northern Gold Coast that has a gross development value of around A$2bil (RM6.2bil) and Hayman, a five-star private island destination in Australia's Great Barrier Reef.

Topping all that is MIB's 25% stake – making it the single largest shareholder – in FKP Property Group, Australia's leading property investment company. The Australian-listed FKP is also the largest private sector owner-operator of retirement villages in Australia and New Zealand.

All these assets were acquired by Mulpha Australia between 2002 and 2004. FKP and MIB were recently in the news in Australia over rumours that FKP's second-largest shareholder, Stockland, itself a leading Australian property developer, could be seeking to take over FKP.

Lee says MIB is not keen on selling its shares in FKP as there is still a lot of upside potential in the latter. Talk of the takeover is said to have led to the slight increase in FKP's share price in recent weeks, pushing it up to around 90 Australian cent a piece.

Interestingly, MIB's 25% stake in FKP alone has a market value of A$275mil (RM855mil). MIB's other significant strategic stake in a listed company is its 22% holding in Mudajaya Group Bhd. MIB's Mudajaya stake has a market value of some RM350mil.

Combined, these stakes are worth around RM1.2bil, which is close to the market capitalisation of MIB of RM1.27bil at today's prices.

"There is a lot of embedded value in MIB," says Lee.

UBS Malaysia, in a recent note to clients, commenting on the potential bid for FKP by Stockland, highlighted the fact the MIB seems to be undervalued. "MIB looks undervalued currently. Its market capitalisation is around RM1.27bil, which is almost equivalent to its stake within FKP and Mudajaya, hence everything else comes free," UBS said.

However, it should be noted that MIB has slightly over RM1bil in debt. Still, that debt level has not been a concern for MIB because of its huge asset base. In any case, those assets that are seemingly "free" to MIB investors, are looking rosier by the day. In Australia, MIB is poised to pocket over A$100mil (RM309mil) if the sale of its Hilton Airport Melbourne hotel goes through.

Lee has confirmed that the hotel had been put up for sale and that the compay is in advanced talks with potential buyers but he declined to comment on pricing. News reports in Australia had put the figure at about A$100mil.

MIB's Hayman resort is also enjoying a new income stream from the sale of a few plots of land on the island as exclusive holiday homes.

Lloyd Donaldson, head of hotel investment for Mulpha Australia, said the company had secured the necessary approvals to build 42 homes on Hayman Island. So far three have been sold at prices from A$15mil (RM46.4mil) to A$20mil (RM61.4mil), depending on the size of the house. These prices are believed to be a record high for holiday homes in Australia.

Then there's the Sanctuary Cove, which was acquired by Mulpha Australia in 2002 for A$208mil (RM644mil). According to Sanctuary Cove executive general manager, Alison Quinn, more than A$60mil (RM186mil) of property sales were achieved in the first half of 2010.

MIB also has Leisure Farm Resort, it's prized Malaysian asset, a vast award-winning resort-styled residential development in Johor. Leisure Farm is strategically located within Iskandar Malaysia and is only a 15-minute drive from Tuas in Singapore via the second link.

Leisure Farm reported a rise in profits in the first half of 2010 to reach RM8.6mil from RM2.2mil in the previous corresponding period.

According to MIB, sales of its Bayou Water Village (one of its seven themed residential precincts) increased after its completion in the last quarter of 2009, with 18 of such units having been sold in the first half of this year.

Analysts also say that Leisure Farm is likely to benefit from the fact that since early this year, Malaysia and Singapore have agreed to cooperate on the development of Johor.

MIB has another 600 acres of land in Leisure Farm to develop.

Back to Australia. To be noted is the fact that MIB has had to equity account for losses stemming from writedowns of its Australian assets, mainly FKP. This is because under all assets are required to be marked to market under Australian accounting rules. Hence when the global financial crisis hit, the values of MIB's and FKP's assets had to be written down.

"FKP has a huge retirement asset portfolio. During the better years, these assets were written up but when the crash came, they had to write it down. These are accounting losses stemming from FKP and does not mean that FKP is not doing well," Lee explains.

When asked if there was going to be any more writedowns of FKP's assets that would impact Mulpha's profits, Lee says that is unlikely. "We have indicated such to the market. The cycle has turned and all the asset values are slowly increasing. What we went through was a period of extreme conservatism by the valuers in Australia as a whole."

When asked about dividends, Lee says MIB's board is reviewing its policy regarding dividends. MIB has not been paying dividends but Lee says that by the year-end, the company should have a clear strategy on dividends.

"Previously, when we had no dividends, we were conducting massive share buybacks. As we are not doing share buybacks at the current price of MIB shares, we should be looking at using that money for dividends."

Dividends would tie in nicely if MIB is able to unlock the values of its assets and use the proceeds for rewarding shareholders.

However, MIB is also inclined to reinvest its profits. "MIB's investment philosophy is to maximise the value of its assets and recycle that money into other assets that can generate more value," says Lee.

By The Star

Engine of growth for UEM Land

Under Datuk Wan Abdullah Wan Ibrahim's stewardship, UEM Land has seen major developments taking place in Nusajaya as well as in Cyberjaya

UEM Land Holdings Bhd, a 77.1% unit of UEM Group Bhd, is leveraging on its vast land bank in Nusajaya as its engine of growth and sustainable income over the mid- to long-term.

The company has about 8,300 acres left in Nusajaya, of which about 2,700 acres are currently being developed. It also has 98 acres in Cyberjaya which is currently been developed into a high-end gated and guarded community, Symphony Hills.

From just two projects in Nusajaya – Kota Iskandar Phase 1 and Nusa Idaman – with a total GDV of RM1.2bil in 2006, the company has steadily increased its project offerings in the past four years.

It now has eight major projects in Nusajaya with a total GDV of close to RM13bil. This comprise a broad spectrum of offerings, from various types of residential units in Nusa Idaman, Horizon Hills, East Ledang and Nusa Bayu catering for all market segments; to industrial land in Southern Industrial & Logistics Clusters (SiLC) and Nusajaya Industrial Park; and commercial land in Puteri Harbour and Afiat Healthpark and government offices in Kota Iskandar.

In August this year, it started to expand beyond Nusajaya with the launch of Symphony Hills in Cyberjaya.

The company's expansion can be attributed to the leadership of managing director cum chief executive officer Datuk Wan Abdullah Wan Ibrahim. His vision is to propel UEM Land to become a global community builder.

Wan Abdullah, who joined UEM Land on Jan 1, 2006, is described as a caring employer who shares his dream and vision with his employees and motivates his subordinates to put in their best efforts to achieve the company's goals.

Under his stewardship, UEM Land has successfully seen major developments taking place in Nusajaya as well as in Cyberjaya.

The company has several ongoing projects in Nusajaya, and they comprise catalyst development projects such as Kota Iskandar, the new Johor state administrative centre; Puteri Harbour, an integrated urban waterfront development; Southern Industrial & Logistics Clusters – a managed industrial park which includes Bio-XCell, a new biotech ecosystem being developed under a joint venture with Malaysian Biotechnology Corp Sdn Bhd; Afiat Healthpark, a centre for modern medicine, traditional & complementary medicine and other wellness themed developments.

The residential projects consist of East Ledang, Horizon Hills, being developed under a joint venture with Gamuda Bhd; Nusa Idaman, Ledang Heights and Nusa Bayu.

Other smaller developments include Fortune Point comprising mainly shop houses which serve as the commercial area within the Nusajaya Industrial Park 2 as well as the Symphony Hills project in Cyberjaya.

Several projects in the pipeline include Northern Estuary (a new eco-themed upmarket residential precinct adjacent to Puteri Harbour), Nusajaya West and Regional Commercial Centre.

"The response and take-up rates for our projects have been quite strong. For the various residential projects that have been launched in Nusajaya, the average take-up rate is 77% while at Symphony Hills, which was launched in early August, it has achieved sales of slightly above 50%.

"Sales for industrial land in Southern Industrial and Logistic Cluster (SiLC) phase 1 and 2A (with a total saleable area of 275 acres) have almost been sold out. It is now starting on phase 2B which brings to market an additional 260 acres of light/medium industrial lands," Wan Abdullah says.

Its top contributors had traditionally been Puteri Harbour and SiLC but for the last two years, Nusa Idaman has also started to contribute strongly to sales.

Moving forward, the company expects East Ledang and Symphony Hills to turn in higher contribution as they reach their maturity.

"The positive market sentiments have helped boost sales, particularly for Nusa Idaman and Ujana Apartments in East Ledang. Overall, our sales has been steadily picking up since the start of the year. Our total sales for the first quarter was about RM83mil, increasing to about RM117mil in quarter two and about RM124mil in the third quarter," Wan Abdullah adds.

On plans to expand internationally, he says it is one of the key rationales behind the proposed Sunrise acquisition to create a stronger, more capable entity that will be able to undertake more projects not only in Malaysia but also overseas.

By The Star

UEM Land-Sunrise merger unravelled

It's a well-dressed deal, this planned takeover by government-linked UEM Land Holdings Bhd of builder Sunrise Bhd. Accompanied by a cavalcade of rosy numbers and promises that the merged entity will become one of the "leading real estate company by market value, land bank and total assets", not just in Malaysia but the region, the psychology behind the deal is hard to fault.

The truth, however, as analysts and thick-walleted bankers would tell you, rests in the numbers and, of course, execution. And as far as that's concerned, for now, the views appear as varied and divergent as the corporate cultures of UEM Land and Sunrise.

Since the veil was lifted off the quickly-conceived deal a week ago, for many, its obvious financial and strategic merits far outweigh its niggling points. But there are some who quibble over the "low valuation" accorded to Sunrise, while others deem the exercise as benefiting one more than the other.

This must be frustrating indeed for the deal's protagonists. Sunrise's chief steward Datuk Tong Kooi Ong, who is the single largest shareholder and executive chairman, says: "People are always hung up over who gets a better deal. I'm not. If we all try to get a better deal at the expense of the other, then surely we can't get a deal done.

"A deal materialises when both parties believe they are better off. And this one clearly is. The synergies are extremely clear," he says in an interview with StarBizWeek.

The deal in a nutshell

UEM Land has launched a RM1.4bil conditional takeover offer for Sunrise at RM2.80 a piece. Sunrise shareholders have two options – to accept 1.33 UEM Land shares at an issue price of RM2.10/share for every Sunrise share surrendered or to accept 2.8 unlisted redeemable convertible preference share (RCPS) in UEM Land at an issue price of RM1 for every Sunrise share.

Those who opt for the second route, can convert their RCPS any time within two years from the issue date at RM2.30 each.

Shareholders can also choose to redeem RCPS at RM1 upon maturity. Any outstanding RCPS not converted or redeemed will be converted into UEM Land shares automatically.

There's a third option for shareholders if you count dumping their shares and walking away from the deal. OSK Research throws in a fourth – to hold out and wait for a sweeter offer, which it readily admits is risky.

The voluntary general offer is conditional upon UEM Land receiving more than 50% acceptance, which is deemed almost a done deal as three key shareholders – Tong, Datuk Allan Lim and Tan Sri Danny Tan Chee Sing – who collectively own 40.3% interest in Sunrise (25% is held by Tong) have given an irrevocable undertaking to accept the offer.

Assuming a 100% acceptance for the share swap, UEM Group's current stake of 77.1% in UEM Land will be diluted to 65% while Tong and friends will collectively hold 6% in the merged entity and other shareholders of Sunrise will have a collective stake of 9% in UEM Land.

On the other hand, a 100% RCPS alternative with full conversion under the cash conversion method will see UEM Group's stake in UEM Land diluted to 56% while Tong and his friends will collectively hold 11% equity stake in the merged entity and other Sunrise shareholders will have a collective stake of 17%.

The quibble

Could the offer have been better? Maybe.

And more so, if you agree with OSK Research that the Malaysian property scene is "at the cusp of a strong positive re-rating". By most valuation benchmarks – be it price to earnings (P/E), price to net tangible asset (P/NTA) and price to real net asset value (P/RNAV) – it would appear as if the offer falls short.

At RM2.80 a piece and with the just-announced 20 sen net interim dividend tossed in, OSK Research says Sunrise is valued at 1.3 times FY11 price/NTA but at a mere 0.58 times price/RNAV (RNAV of RM5.15),

The offer, says ECM Libra Research, only values Sunrise at 7.3x P/E based on CY11 earnings, which is lower than its peers. "Its closest peer Mah Sing, which has similar market capitalisation and also a perceived lack of landbank, is currently trading at 10.4x P/E based on CY11 earnings," it says.

Sunrise's pre-announcement traded price of RM2.52 is some 23% off its 52-week high of RM3.26 while UEM's last traded price of RM2.26 is merely 10% off its 52-week high of RM2.52.

To put it simply, to accept the offer, Sunrise shareholders ought to be convinced that the merger would unlock more value in their holdings over and above what the company can achieve on a stand alone basis.

Ultimately, the best barometer on the market's take to the offer still rests in the price performance of both counters post-announcement. The deal has received a resounding nod; both counters have leaped since the announcement. Sunrise's shares have climbed 25% from its pre-suspension price of RM2.52 to RM3.16 on Thursday while those of UEM Land has risen by 9% from RM2.26 to RM2.47.

But one market wag says the trend is "rather atypical". "Normally, the buyer's counter will fall while the seller's will go up. But in this instance, both have gone up. Because it's a share swap, if the buyer goes up, the target's price will also rise," he says.

That's a good start, if any and one that UEM Group Bhd group managing director/CEO Datuk Izzaddin Idris can't help but point out: "For a start, the fact that the market has spoken with the appreciation in the respective share prices, is a good sign."

Naturally, Tong can't resist either: "The value proposition for UEM Land is the strength of the people and the brand in Sunrise. It only makes sense if UEM Land can retain and harness this value for the new enlarged UEM Land ... the financial market agrees given the way both companies' shares have appreciated since the deal was announced."

Merger of unequals?

One's a large scale developer with massive tracts of land with an "I got your back" stamp from the Government, given its ultimate controlling shareholder is state investment arm Khazanah Nasional Bhd, while the other, an entrepreneur-driven nimble outfit with a penchant for high-end high rise buildings. Yet, small, Sunrise is anything but.

"Let me correct a general misperception. Sunrise was, but is hardly, a boutique developer today. It is one of Malaysia's largest property developers with sales of RM800mil and pre-tax profit of over RM150mil a year. There are only a handful of other developers in Malaysia with better financials," says Tong.

Melding two diverse corporate cultures could prove to be a tough act.

The different cultures are perhaps best embodied by the top executive cadre of the two entities; Tong is the casually-clad innovative-oriented and creative risk-seeker who used to be a banker and also owns media company The Edge Communications Sdn Bhd apart from having businesses abroad. UEM Land CEO Wan Abdullah Wan Ibrahim is an industry lifer who has spent over a decade of his career in several GLCs while Izzaddin, boss of UEM Group, which controls UEM Land, is a "GLC-lifer" who has spent his career in a smorgasbord of businesses from banking, utility, construction to property. One's a true-blue entrepreneur, while the other two, true blue professional managers.

It's easy to forget but UEM Group is actually more of a "reverse GLC" as it was privately-owned long before it was brought to the fold of state-owned Khazanah.

"UEM has a private sector DNA but it has government backing. In that sense, you can say that both organisations are not as vastly different as perceived. Still there is a state-owned mentality that's quite prevalent in the organisation," says an observer.

But some contend that it is this unique difference which could make the teaming up work.

"The unique thing about property companies is that the cultures may not even have to merge. By nature, a property company is focused on a project by project basis. For example, in UEM Land, the Putera Harbour team (a high end luxury waterfront project) is different from the team that is undertaking the rest of Nusajaya. On the development side, there are always separate teams handling the various projects. That means, one can leverage off the central expertise but each development can run separately," says an industry observer.

Still, quite visibly it's an issue foremost in everyone's mind.

"The major challenge will be people. We will need to address their concerns, to encourage and motivate them," says Tong.

Izzaddin alludes to that when he says: "Ultimately with any business or operational combination, the challenge is to successfully implement the plan to immediately extract the synergies. Call it execution risk. In this case, with the common ground and universal values that both organisations profess coupled with the professionalism and mutual respect we have for each other, I am fairly confident that it will be the case of 1+1 is more than 2. The issue for my team and I is how much more than 2!"

Tension among partners?

Could there be another reason, though not over-riding, for the recent deal? According to industry insiders, there is some long-standing friction between two other major shareholders of Sunrise – Danny Tan and Allan Lim, who respectively own 8.5% and 7.2%. Tan and Lim are brothers-in-law, having married two sisters.

Lim, the executive deputy chairman of Sunrise, according to insiders has keen interest in property development and has contributed substantially to the group's achievements. On the other hand, Tan is regarded as a passive investor in Sunrise as he is the controlling shareholder of another property company Dijaya Corp Bhd.

Still, an industry source says "the issues" between the two parties do not at all affect Sunrise.

For UEM Land, it hooked up with Sunrise after trawling for potential suitors for some time.

"We explored a host of potential candidates. After a careful study ... where we mapped the various candidates' profiles against a selection criteria based on our own strategic requirements, we felt that Sunrise was the most suitable candidate.

We were fortunate that Sunrise shares the same view and more importantly it was a willing seller," says Wan Abdullah.

Paving the way for an exit?

There is a strong sense of foreboding in the marketplace, that Tong, through this deal, is paving the way for his exit from the property developer. That may be a possible risk which, at this juncture, none of the deal's proponents would care to admit as he has been instrumental in the company's commendable growth in recent years.

In fact, Credit Suisse in a recent report pointedly refers to it: "The risks to potential benefits lies in the retention of Sunrise's key staff and the role Sunrise chairman Datuk Tong will play in UEM Land following the acquisition."

OSK Research echoes this sentiment: "Should he (Tong) no longer play a proactive role in driving Sunrise post-merger, there is little doubt that the company's current shareholders may get jittery."

But Tong is quick to brush off such nagging suspicions. "I am a shareholder of Sunrise like other shareholders. This deal creates value for all of us. I am not sure what you mean by "exit". I am not selling out. I am accepting the offer," he says just as pointedly.

"It is not possible to know how long I will stay invested, whether in Sunrise or in the new enlarged UEM Land. Many things can happen to my life. But my intention is to continue (being) invested, to help grow the business and the people and create value for shareholders and customers," he elaborates.

In line with this, Tong will be made chairman of both the development committees of UEM Land and Sunrise, and is expected to be the "platform" to take Nusajaya (UEM Land's flagship project) to the next level. "This appointment is a strong signal from UEM Land (that they want my experience, knowledge and assistance)," says Tong.

Tong's RCPS option

Tong plans to convert his shares in Sunrise to the RCPS of UEM Land. "Taking the RCPS shows my longer term commitment to the enlarged entity. The market would be worried if I take shares on the basis that I will sell out," he says, adding that this acquisition was clearly not just for the physical assets of Sunrise but also "the intangibles, the brand, the people".

"The structure of the RCPS has a good gearing effect on the performance of UEM Land. Although the conversion is at a premium (RM2.30 versus RM2.10), the RCPS holders can opt for cash option redemption as well ... In other words, if UEM Land does well (which I am confident it will), then the RCPS has a very good "option value".

"What options you choose depends on your assessment of the future success of the enlarged entity. The more positive you are of the future UEM Land, the higher is the value of the RCPS. As someone who will be partly responsible for the future UEM Land, I should show by example and commitment and my confidence. Therefore, I must accept the RCPS. It would be wrong otherwise," he adds.

But as far as minority shareholders are concerned, there may be little reason to opt for the RCPS – it is not tradeable, offers zero yield and is convertible at a higher price. "The shares are more liquid. There's no motivation to take up the RCPS. The only one who may be incentivised to do it is someone like Tong as it allows him to buy more shares in future and tap the upside potential of the group, which he will be helping to contribute to anyway over the next two years (tenure of the RCPS)," says an observer.

The pull factor

UEM Land's most prized asset is in Nusajaya, located west of Johor Baru and part of Iskandar Malaysia, a masive southern development corridor project. UEM Land has some 8,300 acres left in Nusajaya, of which about 2,700 acres are currently being developed.

To date, the company has introduced various projects in Nusajaya with a combined gross development value (GDV) of RM13bil. "UEM Land has brought in various development partners to accelerate the development namely Gamuda Bhd, United Malayan Land Bhd, Malaysian Biotechnology Corp Sdn Bhd (BiotechCorp), Encorp Bhd and most recently Bandar Raya Developments Bhd with a total committed land investments of RM744mil.

Sunrise, and more specifically, Tong's role in this precious piece is hard to miss.

"This deal will allow UEM Land to leverage on Sunrise's strong brand equity, pioneering knowledge in developing "lifestyle experience", capable management team and proven track-record in managing development of quality, high-rise residential, serviced residences and commercial properties.

"Sunrise will be able to immediately fill one of the numerous key components of the entire Nusajaya development," says Izzaddin, In short "to pull in the crowd and buyers".

The BIG picture

The deal's merits are hard to knock. UEM Land will be able to feel the sugar rush in its earnings as soon as it consolidates the financial results of the Sunrise group, which has RM3.2bil in GDV for new projects till the end of next year with RM1.2bil in unbilled sales, boasting an admirably high gross margins of 30%.

For Sunrise, it is just as compelling; it can finally diversify from flagship Mont'Kiara, where some say competition is heating up and gain an entry into Iskandar Malaysia, which is in sync with its growth strategy to have "multiple products in multiple locations." It also helps solve its "small landbank" disadvantage (Sunrise has 164 acres versus UEM Land's 11,400 acres).

But be warned – big may be vogue for booming sectors hungry for consolidation but it doesn't always end up better. The corporate landscape around the globe is proof of that.

Closer to home, the mega plantation merger that resulted in the rebirth of a larger Sime Darby Group three years ago is far from flaw-free. If anything, it has taught us that the sweetness in the combined numbers and commercial rhetoric at the inception of such mergers can very soon turn sour if executed poorly.

For we all know, UEM Group, which has to a great extent managed to shed its past stigma, can ill afford another big blunder.

By The Star

What's in it for UEM Land?

P. Gunasegaram says UEM Land's offer for Sunrise raises questions as to how it can benefit from the deal.

NO matter how you look at it, it's a rather interesting deal and a very intriguing one too. It's not everyday that a group of entrepreneurs gives up control of their prized asset to a government-linked company (GLC) and yet remain in the group, accepting a minority stake.

We are of course talking about UEM Land's takeover of developer Sunrise Bhd (see our cover story this week), controlled by businessman Datuk Tong Kooi Ong and friends.

The offer is RM2.80 cash a Sunrise share, valuing the deal at RM1.39bil and includes UEM Land shares, or redeemable convertible preference shares alternatives instead of cash.

Analysts have largely hailed the deal and the rise in price of both shares has been cited as evidence for market acceptance for the deal. That may not be strictly correct as Sunrise's rise is purely due to the takeover offer.

UEM's share price before the announcement was RM2.26, Sunrise's was RM2.52 with dividends of 20 sen per share.

That puts the effective offer price at RM3.00 a share after taking out the 20 sen dividends. So definitely, there was upside to Sunrise as the offer was effectively about a 20% premium to market.

Also days before the suspension, Sunrise's share price was hovering around RM2.20, which indicates the deal was not such a close-kept secret after all. Using this price, the offer was a good 36% above the market price, a handsome premium indeed.

So it does not come as such a surprise that Tong accepted the deal. Faced with a dwindling land bank and marginalisation of his role as a property developer, he made the best decision for himself.

He not only got access to a whole lot of land bank but exited Sunrise at a very generous price effectively at a substantial premium to market.

He lost control of Sunrise but got the opportunity to play a major role in UEM Land, which if he plays well, will earn him lots from his minority stake in UEM Land.

Things are not that clear-cut for UEM Land though. Were they paying too much for Sunrise? Can't they have just bought professional expertise on a project-by-project basis instead of spending RM1.39bil to buy basically expertise and brand? Did they need the other assets that Sunrise had?

But still the UEM Land deal has to rate better than the one another GLC made with Sunrise earlier this year (see A Question of Business: Does Sime Darby need Sunrise? Feb 6).

Then Sime Darby entered into a 50:50 joint venture with Sunrise to undertake a RM1bil commercial development in Bukit Jelutong, Selangor.

The land belonging to Sime Darby was to be injected at a mere RM125 per sq ft into the joint venture when residential land in the area was already selling at more than that.

Now that Sunrise is going to be wholly owned by a GLC, that deal may seem a bit more palatable, although not to Sime Darby minority shareholders who still lose out.

Back to UEM Land, the deal is certainly better than what Sime Darby had cut with Sunrise because any benefit that accrues to Sunrise will accrue to UEM Land as well.

That reduces the question mainly to whether UEM Land is paying too much for Sunrise and whether it needed to pay for all the other assets that Sunrise had when what it was looking for was merely expertise.

History has repeatedly shown that it is possible to buy expertise in the form of professional project consultants, property experts, architects and others. Evaluation was key.

This was amply shown by the development of the Petronas twin towers. Tycoon T. Ananda Krishnan, who got the project started, had no major property expertise to speak of.

But he got the project going and off the drawing boards and it remains a landmark development. There are countless others before him who have done the same thing.

Why can't our GLCs do the same? But one thing is clear. Tong, despite Sunrise's dwindling land bank, is very much on the property scene using other companies' land banks.

No matter how he got there, that's a nice place to be. Question is, how much the two GLCs – first Sime Darby and now UEM – benefit from the tie-up with him.

·Managing editor P. Gunasegaram knows that land is more valuable than buildings and people more than both.

By The Star (by P. Gunasegaram)

Sunrise on stage 3 of growth

HAVING built up a strong brand name in the Mont'Kiara high-end condominiums market, Sunrise Bhd is embarking on the third stage of its growth to diversify its property development activities geographically.

It has since ventured to other areas including the Kuala Lumpur City Centre, Bukit Jelutong, Kajang and Seremban as well as overseas to Canada.

"The company is duplicating its success in Mont'Kiara into other localities locally and overseas. The aim is for Sunrise to create multi-products in multi-locations," Sunrise executive chairman Datuk Tong Kooi Ong says.

According to Tong, planning has been ongoing for the last couple of years and it has successfully launched phase 1 of Quintet in Richmond, Canada in September.

It is also working on the Bukit Jelutong joint venture project and several other parcels of land owned by Sunrise in various locations in the Klang Valley.

The 50:50 joint venture with Sime Darby Property Bhd for the RM1bil development on 21 acres in Bukit Jelutong will consist of retail, shop offices, office suites and serviced apartments. The project is slated for launch sometime next year.

Tong says Sunrise is also venturing into hospitality – a new business that will add to its brand value.

"The primary objective is in the operation of serviced residences. This new unit also aims to assist our existing home-owners in generating yield and occupancy for their properties through medium to long-term leasing," he adds.

Currently Sunrise has 14 residential projects (including 11 Mont'Kiara) with over 5,400 units and three commercial projects.

The company has managed to grow its sales and profits by over four-fold in six years, while profits for the entire industry remained constant during the same period, he says.

"We have built pre-tax return on equity (ROE) from 11% to over 21% during the same six-year period. This ROE is more than twice the industry's norms."

In its current financial year ending June 30, 2011 Sunrise plans to launch four projects with a total gross development value of about RM3.2bil. As at June 30 this year, it has unbilled sales amounting to RM861mil.

The company's strong pipeline of new projects that include Menara Solaris in downtown Kuala Lumpur, Quintet, Canada (phase 2), Mk20 in Mont'Kiara, Bukit Jelutong joint venture development in Shah Alam and the Kajang project, will be a boon to its financial prospects.

Since coming on the company's board in 2003, Tong has been leveraging on Sunrise's prowess in the luxurious condominium market by moving into the commercial property sector.

Up until 2002, referred to as stage 1 of the company's growth, Sunrise was very much a single-product company, developing mainly residential condominiums in Mont'Kiara. It has since moved on to stage 2, where it ventured into multiple products (commercial and residential), mostly within Mont'Kiara to target a bigger market segment.

Its products cater to the different market segments, complement the existing projects and enhance the strategic appeal of the entire community.

The Solaris range of commercial properties in the Mont'Kiara/Dutamas area aims to add value, generate retail activities, and enhance mobility and convenience within the thriving Mont'Kiara neighbourhood.

In the last eight years, it has also developed mid-sized condominiums (Mont'Kiara Meridin and Mont'Kiara Banyan) and large spacious condominiums (10 and 11 Mont'Kiara) to cater to the diifferent market segments.

Tong's vision for Sunrise is to build dream homes and create value for all stakeholders; customers, staff, shareholders and the community. He believes the company's success is not solely measured by its profitability but also by the contribution it makes to the community and how others will become better off.

Tong's strategy to achieve the vision of value creation is depicted in the Quintet Development Strategy that focuses on the five key elements of location, product quality, services, environment and lifestyle.

"Sunrise will stay committed to its business proposition of value creation and more importantly, it will also focus on delivering its brand promise to the stakeholders by continuously improving its product and service quality and managing costs more efficiently through economies of scale and innovation," he explains.

Going forward, Sunrise's brand premium will be an immense asset to the company's expansion into other new markets, both locally and abroad.

By The Star

Sunrise-Sime partnership progressing well: Tong

PETALING JAYA: Doubts over the status of a joint venture between Sunrise Bhd and Sime Darby Property Bhd to undertake an integrated commercial property project in Bukit Jelutong were dispelled after Sunrise executive chairman Datuk Tong Kooi Ong said the partnership was progressing well.

In an e-mail interview with StarBizWeek on the status of the joint venture, Tong said the joint development committee met regularly and the project planning was very advanced.

"We are working with an international architect and making decisions with Sime Darby on the product offerings and mix. Hopefully, we can bring this project to the market by the end of next year," added Tong.

The 50:50 joint venture was inked in January to develop 21 acres in Bukit Jelutong.

Sime Darby Bhd, the parent of Sime Darby Property, had in August said the conglomerate was taking a re-look at some of its property joint ventures and, where possible, would be seeking to unwind out of ventures that did not create maximum value for itself.

Besides the joint venture with Sunrise, Sime Darby Property also has 60:40 joint ventures with the Brunsfield Group to develop property projects such as Subang Avenue, Oasis Damansara and the redevelopment of Oyster Cove, an exclusive waterfront resort on Australia's Gold Coast.

in a separate e-mail response, Sime Darby acting president and group chief executive Datuk Mohd Bakke Salleh said the group's new management and the board were reviewing all joint-venture agreements to ensure that the interests of Sime Darby were safeguarded.

"Currently, there is no conclusion to end any joint venture. We regularly perform reviews of our businesses and joint ventures to ensure that they are still in line with our objectives. We are extracting the most value out of our partnerships," he added.

According to Bakke, the Bukit Jelutong venture would comprise retail space, shop offices, office suites and serviced apartments with gross built-up area of approximately 2.7 million sq ft.

It will be developed over five phases with the first phase scheduled for launch in July next year.

"The project with a gross development value of RM1bil is expected to be completed in seven years from the launch of phase one."

Phase one will comprise retail space and offices; phases two and three will be retail, offices and serviced apartments; while the fourth and fifth phases will be retail and offices.

By The Star

More restrictions to ease property bubble?

The rising prices of houses is still one of the hot topics among average Malaysians as the threat of higher inflation is growing by the day.

The fact that Bank Negara had early this month imposed a lower loan-to-value ratio (LVR) for those taking up their third and subsequent mortgage loan shows the central bank also considers the situation quite worrying. Effective from Nov 3, house buyers who have already signed up for two mortgages and are applying for their third loan will only be eligible to get financing of up to 70% of the value of their house.

Although it is largely seen as a timely pre-emptive measure to avert unhealthy speculative activities, some quarters voiced their reservation that the measure is too mild and are asking for "stiffer" measures to rein in rising prices.

Their argument is that people who can afford the higher downpayment for their property purchases will not be affected by the lower LVR although the measure may be effective on those who need financing assistance.

The LVR should be further reduced for those applying for subsequent loans. Those applying for their fourth loan should only be granted up to 60% and fifth loan up to 50%, and so forth.

Since the LVR is now used as the basis to decide on the quantum of mortgage loan that house buyers can sign up for, some properties with "unrealistic" price tags are finding it hard to get financing unless their values are adjusted accordingly. Hopefully, this situation will make developers uphold their responsibility properly and price their project according to the fair value of the property.

Just because there is strong demand for landed houses these days, developers should not take advantage of the situation by pricing their property a few notches higher and burden buyers unnecessarily.

Like some parts of the Klang Valley, the situation is also quite apparent in Penang where basic intermediate terraced houses are being priced close to or beyond RM1mil each. With house prices shooting off the roof, banks should also play a more responsible role and should not over-push their housing loans. The "war" between banks is still evident with some banks trying to outdo their competitors by offering "aggressive" interest rates of up to 2.5% below base lending rate.

In fact, banks are still aggressively pushing their credit facilities to consumers.

Although the market situation may still seem to be under control, it is important for all stakeholders to be vigilant and take note of any fast changing signs of overheating.

Like one observer says: "Bank Negara's LVR curb is not just about the restriction per se, but more importantly it is about the SIGNAL that Bank Negara has send out, and that is, the central bank is keeping a wary eye on things and more measures could be introduced if the market does become frothy."

Hence, the psychological impact of such a move is more important in that it will remind developers, potential borrowers, and bankers to be more judicious with their actions, and that is good for the market in the long run.

Otherwise, the central bank may have to impose further tightening measures if the market heats up further.

In fact, various Asian governments are already looking to impose capital controls to curb growing risk of asset bubbles in the region, signalling that the red flag has been raised on the havoc that can be wreaked by the inflow of hot foreign money into the region.

The measures underscore concerns over the US Federal Reserve's second quantitative easing (QE2) – the printing of money to buy US$600bil long-term government bonds – amid an ‘'extended period'' of super-low interest rates to support its weak economy.

The side-effect of depressing the US dollar and keeping borrowing costs near zero will cause speculative capital inflow to Asia as investors seek higher yields in emerging markets.

Hence, the environment is highly conducive for asset prices to spiral further leading to asset bubbles. Besides the high liquidity in the system, the low interest rates and inflow of foreign funds are bound to send asset prices soaring if left unchecked. And when these hot money pulls out, it will result in financial destability and a meltdown in the assets market.

Even without the threat posed by these hot-money, governments in Singapore, China and Hong Kong have already imposed a number of restrictions to dampen the rise in property prices and curtail speculative activities in the property sector.

So it won't come as a surprise if Malaysia also have to resort to more restrictions to ensure the financial and property markets continue to be sustainable.

Deputy news editor Angie Ng hopes industry players are aware that the average Malaysian is still not a high income earner and that they will dedicate some of their projects for well planned affordable housing projects as part of their corporate responsibility.

By The Star (by Angie Ng)

Bandar Raya plans RM652m project

PETALING JAYA: Bandar Raya Development Bhd has formed a joint venture with Country Heights Land Sdn Bhd (CHLSB) to undertake a development at a 47.6-acre site in Seri Kembangan, Selangor.

The joint venture firm, Earth Pavilion Sdn Bhd, will be 75% owned by Bandar Raya and the rest held by CHLSB.

An integral part of the JV is the acqusition of 66 parcels of leasehold land in Seri Kembangan from Bluwater Developments Bhd for RM160mil cash.

“The proposed development of the Bluwater land comprises 310 semi-detached homes and 13 bungalows,” Bandar Raya told Bursa Malaysia yesterday.

The gross development value of the project is estimated at RM652mil, while total project cost was RM481mil. The projected gross development profit is RM170mil, giving it a margin of 26.1%. The project is scheduled to start in the last quarter of 2011, to be completed within five years.

By The Star

CapitaMalls to buy Gurney Plaza block

PETALING JAYA: The manager of Capitamalls Malaysia Trust, CapitaMalls Malaysia REIT Management Sdn Bhd, proposed to acquire a retail extension block of Gurney Plaza and parking lots at the complex in Penang for RM215mil.

A filing with Bursa Malaysia showed that CapitaMalls Malaysia REIT had entered into a conditional sale and purchase agreement with Gurney Plaza Sdn Bhd for the acquisition of a nine-storey retail extension block adjoining Gurney Plaza with a net lettable area of about 139,964 sq ft as at Sept 30, comprising four levels of retail space and car parking bays. The deal also includes another 129 parking bays at Gurney Plaza itself.

“The proposed acquisition is in line with the manager’s investment strategy to provide unitholders with long-term and sustainable distribution of income and potential capital growth,” it said, adding that the building has a forecast property yield of about 7.1% for 2011.

As at Nov 1, Capitamalls Malaysia Trust is the largest “pure-play” shopping mall real estate investment trust by property asset value in Malaysia and the proposed acquisition will further strengthen its position. Following the completion of the proposed acquisition, its property asset value is expected to increase from about RM2.13bil as at Sep 30 to about RM2.36bil.

By The Star

Properties worth A$850m sold at Sanctuary Cove

SANCTUARY Cove is one of Australia’s most successful resort-styled residential projects which Mulpha Australia acquired in 2002 for about A$208mil (RM640mil).

Located on the northern end of the Gold Coast and a 40-minute drive from Brisbane, the more than 2,000-resident estate boasts two golf courses, four harbours, 15 restaurants and harbourside cafes. It still has homes and land for sale ranging from just under A$500,000 (RM1.5mil) up to A$8mil (RM25mil).

Mulpha had acquired Sanctuary Cove from its previous Japanese owners who had collapsed into receivership in the early 1990s. The Japanese were intent on making it a big success and are said to have pumped in some A$1bil (RM3.1bil) into infrastructure at Sanctuary Cove.

However, due to overcapitalisation, the Japanese had faced financial troubles and had to sell it. When Mulpha bought Sanctuary Cove, only under a third of it was developed, with only 600 houses built on the site.

Since then, Mulpha has sold about A$850mil (RM2.6bil) worth of properties at Sanctuary Cove, says Alison Quinn, Sanctuary Cove executive general manager. She says that in the first half of this year alone, more than A$60mil (RM186mil) of property sales were achieved.

Since acquiring it, Mulpha has also invested as much as A$250mil (RM773mil) into the infrastructure of Santuary Cove, focusing on its golfing facilities, creating a retail precinct and expanding its marina.

Sanctuary Cove has a total capacity of 1,922 lots, with more than 800 individual titles yet to be developed including waterfront blocks, golf course and hillside land.

In January this year, as a move to provide more variety into its offerings, Sanctuary Cove released the first homes as part of a joint venture with Australia’s Sunland Group.

The joint venture will involve 117 new luxury homes and duplexes with golf and lake views.

Sunland is the developer of Q1, a tall skyscraper located in Surfers Paradise, on the Gold Coast. It is the world’s tallest residential tower, and the tallest building in Australia.

Last year, more than A$100mil (RM310mil) worth of properties were sold on Sanctuary Cove. It had been reported that this was made up of at least 50 properties, including a large waterfront block that went for A$7.2mil (RM22.2mil) to a Hong Kong-based businessman.

Sanctuary Cove is one of the few property projects in Australia with the Foreign Investment Review Board (FIRB) exemption status, meaning that foreigners can buy and sell properties there without restrictions.

Quinn believes that the company is well-placed to hit the A$100mil mark of sales again this year.

She says a recent A$20mil (RM62mil) investment on Sanctuary Cove’s golfing facilities, including the construction of an A$13mil (RM40.2mil) golf clubhouse followed by an overhaul and redesign of its golf course, has enhanced the community’s appeal.

“We are in the midst of very exciting times at Sanctuary Cove,” Quinn says.

“As a result of this strategic investment, Mulpha now has one of the largest and most diverse property portfolios in the country, and a level of infrastructure and lifestyle facilities that is unrivalled by any other residential community.”

By The Star

Analysts say UK property market sluggish

PETALING JAYA: The property market in the UK is currently very sluggish and prices are low, according to analysts responding to the move by the Employees Provident Fund (EPF) and Kumpulan Wang Persaraan (KWAP) to acquire their first property there.

According to a report by Reuters yesterday, the country's two pension funds had acquired an office building as part of plans to invest up to £1bil in the British property market.

They acquired the office building in London for £156.7mil, translating into a yield of 5.75% and a capital value of £802 per sq ft, said Reuters quoting Jones Lang LaSalle Inc which advised on the deal.

An analyst from a bank-backed research house said Europe's economy was quite bad right now and, apart from Malaysia, other investors were also flocking to the UK to acquire properties. "And when Europe economy revives, the UK is likely to pick up first as it is one of the top cities in Europe," she said.

Another local analyst also shared similar views quoting figures from Bank of England's latest mortgage figure that net lending in the UK, which stripped out redemptions and repayments, was just £112mil in September, down from £1.62bil in August.

It was also reported that lending figures there were unlikely to pick up in the coming months.

as banks restricted the best deals only to borrowers with substantial deposits.

"But, what I say is the yield of 5.75% is quite high," he said.

Previously, EPF said in a respond to query by StarBiz, it had made the decision as it viewed the UK property market as "stable and highly liquid" and one of the world's largest property markets backed by strong laws protecting the landlords.

By The Star