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Wednesday, September 7, 2011

Questions over Bandar Raya property offer

Should Bandar Raya Developments Bhd (BRDB) sell choice assets to its major shareholders?

Ambang Sehati Sdn Bhd, which holds 18.88 per cent of BRDB, has offered to buy selected properties from the group.

These are arguably the best of the lot within BRDB's stable of assets, with The Bangsar Shopping Centre and Menara BRDB top of the list. The rest are CapSquare Retail Centre in Kuala Lumpur, and Permas Jusco Mall in Johor.

The assets are worth close to RM1 billion with BSC and Menara BRDB making up 70 per cent of the total value, according to its 2010 annual report.

Does BRDB need the money? It probably does. As at June 30 this year it has total debt of some RM769 million. It paid about RM35 million in interest last year, which is more than a quarter of its net profit in the same period.

Analysts also agree that it needs cash for further property development. It only has some RM73 million in cash and short term deposits.

But should the board of BRDB restrict the buyer to just Ambang, owned by four investors led by BRDB chairman Datuk Mohamed Moiz Jabir Mohamed Ali Moiz?

It shouldn't. If the objective is to raise as much money from an asset sale, it should invite other bidders. Indeed, rumour has it that a lot of parties have approached BRDB about buying just the BSC. Having other bidders would probably help BRDB to get more money which would also benefit its shareholders.

Industry executives also say that shopping malls are currently in demand by local and foreign investors. In May, Hong Kong's Cheung Kong Group bought three Malaysian malls for more than RM400 million.

Another important question is why would BRDB want to offload assets that provide steady income to the group. It is now a common theme for developers to have that recurring base to offset lean years.

BRDB's property business made a pre-tax profit of more than RM146 million in 2010, its biggest contributor. Its manufacturing and construction business made pre-tax profits of less than RM3 million last year.

This means that Ambang or any other interested party must fork out quite a sum to compensate BRDB for lost future earnings.

In less than two weeks, the board of BRDB will have to decide on Ambang's offer. Although the promise of quick cash is tempting, ultimately, minority shareholders will have to decide since the offer is a related party deal.

By Business Times

BRDB deal may be bad for minority shareholders, some analysts say

The Bangsar Shopping Centre

PETALING JAYA: Analysts are mixed on the related-party transaction announced by Bandar Raya Developments Bhd (BRDB), involving its major shareholder Ambang Sehati Sdn Bhd, which has proposed to acquire selected investment assets, including The Bangsar Shopping Centre, Menara BRDB, CapSquare Retail Centre and Permas Jusco Mall.

While some analysts say that it is line with BRDB's intention to unlock value for the group, other analysts feel that this is bad for minority shareholders as the crown jewels of the company are being taken out, and this makes the group's earnings more lumpy in the future.

In an announcement made to Bursa on Monday, BRDB's board received the letter from Ambang Sehati, which holds 19% interest in the property developer, to acquire the assets to “enable the group to monetise these assets and achieve a more efficient utilisation of its capital”, saying that the company's shares had been trading at a significant discount to its net asset value.

Under the plan, it proposes to acquire CapSquare Retail Centre, which is currently held by BRDB's wholly-owned subsidiary Capital Square Sdn Bhd; Permas Jusco Mall, owned by BRDB's 99.74%-owned subsidiary Permas Jaya Sdn Bhd; and BRDB's entire 100% equity interest in BR Property Holdings Sdn Bhd, which owns The Bangsar Shopping Centre and Menara BRDB.

The company said its board (except for Datuk Mohamed Moiz Jabir Mohamed Ali Moiz, who is the chairman of the board, with deemed interests in the proposed acquisition by virtue of his substantial shareholding in Ambang Sehati) would deliberate on the proposed acquisition and decide on the next course of action with advice from the main adviser.

“We need to see how much they are selling the assets for. If they are selling it at fair value, then that's fine.

“To take it at book value, for instance, is not appropriate, because some of these properties were bought some time ago. It needs to be valued at market value,” said a property analyst from a local research house.

He added that monetising the assets was good for shareholders; however, “if it were monetised at below market price, then this was also not a good deal. Then wouldn't it be better off to sell these assets in the open market? I think there are potential buyers for The Bangsar Shopping Centre. This is quite a highly sought-after asset,” said the analyst.

He said while earnings from property investment were not as high as property development, it did provide stability for the company's earnings.

For the quarter ended June 30, 2011, of BRDB's revenue of RM198.9mil, RM152.05mil came from property development while RM28.25mil was generated from property investment. Operating profit derived was RM31.02mil and RM10.62mil respectively.

In the announcement, BRDB said that the purchase consideration would be based on the fair value that would be determined by independent valuers.

BRDB has up to Sept 19 to revert with its decision. This acquisition will be fully cash-funded.

Meanwhile, an analyst with OSK Research is optimistic.

He said that the potential disposal was in line with BRDB's intention to unlock the value of its assets.

“With the purchase consideration paid wholly in cash, we think it is very likely that BRDB would distribute a sizeable portion of the cash proceeds as a special dividend to its shareholders.

“As at the first half of 2011, BRDB had retained earnings exceeding RM1bil but held a cash balance of RM41mil only while a chunk of its assets were in the form of investment properties.

“We believe that by monetising its investment properties, BRDB would be able to distribute a portion of its retained earnings to shareholders as a special dividend.

“Subsequently, BRDB will end up with a leaner balance sheet, which could possibly boost its return on equity,” said the OSK analyst.

In BRDB's 2010 annual report, the three assets proposed to be sold collectively carry a book value of RM942.4mil.

By The Star

Depleting landbank may prompt BRDB to sell assets

Analysts say Bandar Raya wants to increase its property development activities to improve earnings, which have been below par lately.

Kuala Lumpur: Bandar Raya Developments Bhd (BRDB) may sell its prime assets to buy more land in the Klang Valley, Penang and Johor as its current landbank is depleting, analysts said.

It may agree on a price of RM1.2 billion, which is about 27 per cent more than their book value.

They said BRDB wants to increase its property development activities to improve earnings, which have been below par lately.

For the quarter ended June 30 2011, BRDB posted a net profit of RM17.1 million, down from RM84 million in the same period last year.

"The stock has been trading below its true value as its earnings have not been as good as expected. Only recently BRDB had been more active in terms of launches," said a senior analyst with MIDF Research.

BRDB, which has four ongoing projects, has less than 25 hectares of land in Bangsar, Dutamas, Seri Kembangan and Taman Duta, and some 124ha of land in Johor.

On Monday, BRDB's major shareholder Ambang Sehati Sdn Bhd, controlled by its chairman Datuk Mohamed Moiz Jabir Mohamed Ali Moiz, had offered to buy some of its assets.

These include The Bangsar Shopping Centre, Menara BRDB, CapSquare Retail Centre in Kuala Lumpur, and Permas Jusco Mall in Johor.

BRDB has, until September 19, to decide on the offer.

The company had appointed CIMB Investment Bank Bhd as its main adviser to evaluate the offer.

"It is obvious that the owner is taking the good assets. He may eventually flip it in a few years to make back his money. Retail assets are very valuable in Malaysia.

"Most of them are trophy properties ... not high value assets except for BSC which is a cash cow for the company," said another analyst.

According to BRDB's 2010 Annual Report, the value for BSC and Menara BRDB is RM660 million while Cap-Square Retail Centre and Permas Jusco Mall are valued at RM214 million and RM68 million, respectively.

OSK Investment Bank Bhd director and head of equity ca-pital markets, Gan Kim Khoon, thinks BRDB will sell the properties and prove to shareholders that they will stand to benefit from the disposal.

"BRDB will make quite a substantial capital gain from the disposal. Otherwise, it won't make sense to dispose of these income-generating assets.

"If BRDB is offered a good deal to sell the assets with substantial capital gain, that may outweigh the loss of future income stream. BRDB can generate income from property development projects," Gan told Business Times.

By Business Times

Property players concerned over new housing loan criteria proposal

KUALA LUMPUR: A proposal to change the way housing loans are approved has property consultants and analysts worried as they felt loans given based on net income as opposed to gross income would dampen demand for housing.

Some banks, however, don't have an issue with the proposed changes as one banker said changes to the debt serviceability ratio would be good for the housing market. He said the proposed changes were for the benefit of home buyers.

“It's up to the banks to manage it. Banks have their own ways to control and approve loans,” said Zerin Properties CEO Previndran Singhe.

Previndran was critical of the proposed change, saying such a drastic move would be self defeating and would mean more Malaysians could not afford homes.

Henry Butcher Marketing Sdn Bhd chief operating officer Tang Chee Meng said such a move would tantamount to a limit on the amount of money a person could borrow to buy a house.

Although lower demand may push prices down, he does not think developers may be able to reduce prices by much given the increase in building material prices over the years that has pushed the cost of building a home upwards.

“I will support any measure by the Government to cool down the property market so there is no bubble, but they have to be careful when taking measures and need to determine if there is really an asset bubble building up,” Tang said.

One analyst who covers the sector said such a measure, if it was to control speculation in the property sector, was not needed at the moment as house prices would soften in a period of weak demand brought about by an economic slowdown.

“Developers and banks would surely lobby against such a move,” she said, worried about the chain reaction a weaker property market would have on the overall economy.

RHB Research Institute on Monday analysed the proposed changes and concluded that a move to change the assessment of eligibility for housing loans to a net income basis would lower affordability by 14% to 37%.

It said the high-end market would be most affected, and should supply match demand then prices would have to correct by a similar or smaller percentage, or supply will have to be reduced to hold up prices.

“The mass market segment which is largely concentrated in the medium-priced range will see smaller impact, especially if first-time home buyers are excluded from this measure,” it said.

While some might see the measure as a move to bring down the price of homes, others think such a move by Bank Negara would in turn ease the growth in household indebtedness.

Bank Negara, which had been looking to introduce guidelines to stress-test individual borrowers this quarter, has sought the opinion of banks on the proposed move.

One of the factors that precipitated that move is the buildup of debt that has seen household debt to GDP ratio reach nearly 76%, which is on the high side compared with countries in South-East Asia.

“It is understandable for Bank Negara to take action given that the rising household debt, as measured by household debt to GDP ratio, has surged to a record high level in 2009 and 2010, largely stimulated by low interest rate and easy financing scheme for property purchase,” said RHB.

With residential loans rising 14.7% in July, residential loans accounted for 54.3% of total loans in the same month, up from 49.7% a year ago.

Although housing loans had been the biggest contributor to the increase in household debt, the buildup of personal loans had also been rapid and that had caught the attention of the regulator.

Lee says the intention of the proposed change is to get people to buy what they can afford.

CIMB Investment Bank Bhd economic research head Lee Heng Guie concurred that the proposal would affect demand for housing, but said the intention of the proposed change was to get people to buy what they can afford.

Lee said any decision to implement the new computation method had to be weighed against the current sluggish global economic situation.

And while household debt may be an issue, the ability of households to service their loans do not appear to be a problem as yet.

Lee said that in 2010, for every ringgit of income, households paid 47.8 sen to service their debt.

The debt service ratio of household debt was 49 sen in 2009, 39.5 sen in 2008 and 41.1 sen in 2007 and the factors that affect that ratio is household income and the interest rate outlook.

By The Star

Brisk property sales in Singapore

SINGAPORE: There were surprisingly brisk sales at property projects over the weekend, to give the month a rousing start after weeks of slow action.

No one in the market had expected sales to hit the levels of a year ago but the numbers in recent days have lifted sentiment.

The Luxurie in Sengkang has sold 180 units since sales started last week at an average price of S$980 per sq ft. Most of the project’s 622 units are two and three-bedders.

Its pricing is similar to that of neighbouring mass-market development H2O Residences by City Developments, but its proximity to Sengkang MRT and bus interchange made The Luxurie more attractive, said DMG and Partners Research. The Sengkang Public Library and Community Hub are also nearby, as are CHIJ St Joseph’s Convent and Rivervale Primary.

The Meyerise, a freehold development in Meyer Road, has racked up about 80 sales since it started last Friday. Singaporeans and permanent residents comprised about 90% of all buyers. The project has 239 units – a mix of two, three and four-bedroom as wel as penthouse units. The average price was S$1,950 per sq ft, with three-bedroom units the most popular among buyers.

The Meyerise is minutes away from Parkway Parade and Katong Shopping Centre, with Playground@Big Splash and East Coast Park also nearby.

There were 24 units shifted at EuHabitat in Jalan Eunos over the weekend, bringing the total number of sales to 472 out of the 548 apartments available.

Another 20 homes were sold at Boathouse Residences in Upper Serangoon over the same period.

This strong response was also mirrored in the executive condominium market, where applications for the Arc at Tampines were expected to surpass 1,180 by Monday’s 10pm deadline. With 574 units up for grabs, this translates into a healthy subscription rate of about 2.1 times.

Anecdotal observations suggest that several showflats, including those at the Arc at Tampines and The Luxurie, were packed with prospective buyers, although that may not translate into big sales numbers.

Associate professor Sing Tien Foo from the department of real estate at the National University of Singapore’s School of Design and Environment said he was surprised by the crowds. “I thought a lot of people are waiting to see how the global market situation will turn out,” he said.

“Some people could be going into the showflats to look for inspiration, others could be going out of curiosity to see what the market situation is like before making a decision.”

ECG Property, which marketed several properties over the weekend, said while crowds continued to visit showflats, they were not as big as those seen at the beginning of the year.

ECG chief executive Eric Cheng is optimistic that the next few months will be better: “September is not a good month. We’re just getting over the stock market shock and the ghost month has barely ended. The market is still looking very uncertain. Some people may have lost money in the stock market and they might not be looking to put money into property for now.”

But Steven Tan, OrangeTee’s director of residential, is confident that the demand for new homes will continue despite lingering economic worries.

“Now the main group of buyers are those who are purchasing for their own stay. Transactions from this group are driven by genuine demand and they are less affected by all these economic uncertainties,” he said.

Low interest rates will also go some way towards encouraging new home sales, say analysts.

The number of new home sales, including executive condominiums, hit 1,954 in July.

By Singapore ST

UK house prices lower in August

LONDON: British house prices fell 0.6% in August from July, when they had increased by 0.3%, a key survey by home loans provider Nationwide showed.

“UK house prices declined by 0.6% in August, although this does not change the picture of relative stability that has characterised the market over the past 12 months,” said Nationwide chief economist Robert Gardner.

The average value of a home in Britain stood at £165,914 in August, according to Nationwide. That was just 0.4% less than the same month last year.

“Sluggish demand for homes, combined with only a gradual rise in the supply of available properties, has helped to keep property prices stable since last summer,” added Gardner.