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Saturday, September 24, 2011

Sunhor optimistic amid challenges

Soho style: Lim by a wall-sized artist impression of Tigaman Square. He says a predominantly industrial area would augur well for a retail outlet.

Sunhor Property Bhd group managing director C.T. Lim is ready to face challenges in his company's maiden commercial development in Bukit Kemuning, Shah Alam.

The bottom three levels feature retail units, followed by two levels of parking space, and one level of office suites with a Soho concept.

The “pull factor” will be the retail outlets, which Lim hopes will turn Tigaman Square into a trendy shopping spot and Bukit Kemuning into a vibrant business and social venue.

But sceptics doubt that the project will be able to woo tenants, given the profile of its immediate surroundings, which comprise mostly industrial lots and the lack of a strong population to support the retail portion of the development.

Lim, however, remains optimistic. He believes that the challenges the Tigaman Square development faces involve where the project's opportunities lie.

“People say that it's mainly an industrial area and that the population is not sufficient to support commercial development, especially for shopping or retail outlets,” Lim tells StarBizweek.

Citing a recent demographic study, Lim says the population within a 5km radius of the Tigaman Square development stood at 426,706 people in 2010 and is expected to grow to 626,311 by 2015. He says a population of 626,311 people matches that of Petaling Jaya, which has over 520,000 people currently.

“With a population of over 600,000 people (within a 5km radius of Tigaman Square), it should be able to support malls like in Petaling Jaya.”

There are those who argue that the PJ population is relatively more affluent, but Lim disagrees.

“Places like Kota Kemuning and Bukit Rimau are mature areas. There are houses there costing RM700,000, similar to those in PJ and Shah Alam.”

Lim also argues the fact that Bukit Kemuning, as a predominantly industrial area, would augur well for a retail outlet.

“An operator of an industrial lot would need to be more affluent than a shoplot operator. If an area is classified as an industrial area, there should be more affluent people there. And at this point, they don't have anywhere to go to spend their money,” Lim says, adding that Tigaman Square would be the only retail outlet of its kind within a 5km-10km radius.

Lim says the company is also banking on the lack of retail developments in the vicinity for the project's success.

He says the nearest retail or shopping outlets such as Plaza Alam Sentral or PKNS complex (Shah Alam), Jusco Bukit Tinggi (Klang) or The Summit (Subang Jaya) are all more than 5km away.

He adds that Tigaman Square will be easily accessible via major roads and highways like Lebuhraya Kemuning-Shah Alam and Kesas Highway.

The retail portion of Tigaman Square will comprise mostly food and beverage (F&B) outlets or between 35% and 40% of the total retail tenant mix, says Lim.

“With over 400 factories within the area, we also want to target factory workers who can come here and have their lunch,” he says.

Lim says a wide mix of F&B tenants will be chosen so that they would complement each other rather than compete with one another.

“About 20% of the total retail space has been taken up and will hit 90% by the time the project is completed.

Sunhor recently had a ground-breaking ceremony for the Tigaman Square development and the project is slated for completion by 2013.

“Most commercial projects take three years to complete but we want to build everything in two years,” says Lim.

Located on 7.69 acres of freehold land, Tigaman Square is expected to have a gross development value (GDV) of RM240mil.

“We expect it (GDV) to be more by the time the project is completed,” Lim says, adding that prices of its units are “competitive” compared to its nearest competitors.

“Our retail units are going for RM650 per sq ft while the office space is from RM375 per sq ft.”

The offices will be partly furnished by Signature Kitchen, a leading player for branded modular kitchens. Tigaman Square will also feature alfresco dining and roof gardens.

“We want to make it as vibrant as possible. At the end of the day, it's about keeping it interesting,” Lim says.

By The Star

Property developers on softer ground

Kuala Lumpur: Property companies' earnings growth in fiscal 2012 will be affected by lower sales, analysts warn.

Property developers are revising their sales target because of the gloomy outlook, especially in international markets.

Companies such as Berjaya Land Bhd, SP Setia Bhd and Gamuda Bhd may be in for some choppy times, given their exposure to the property sector in Vietnam, analysts added.

"They were bullish on their sales target but people on the ground may have provided new insights on how the market in Vietnam will perform," an analyst with a foreign research house told Business Times.

The property market in Vietnam has been suffering from the tightening of monetary policy and high lending interest rate.

Also, foreign investors remain in a cautious mood due to domestic economic problem as well as gloomy outlook of global economics.

A construction analyst from MIDF Research said Gamuda may be cutting its sales target after taking into consideration the combined factors.

"We had a 'buy' call on Gamuda with target price of RM4.68. However, looking at the weakening market condition, we are relooking our target price with a downward bias," the analyst said.

Gamuda, a construction and engineering group, has two projects in Vietnam, namely Gamuda City, a 200ha mixed township which is expected to rake in a gross development value (GDV) of US$9 billion (RM28.6 billion) over nine years, and Celadon City.

Celadon City is expected to generate RM5.5 billion in GDV over nine years. The project is slated for launch in the current quarter.

Gamuda initially was aiming for RM2.8 billion in property sales for fiscal 2012, expecting RM1.5 billion from Vietnam and the rest from local property projects. But it has more than halve its property sales target in Vietnam to RM650 million.

The MIDF analyst expects Gamuda to start recognising earnings from the property sales in Vietnam from 2012 onwards.

For the first nine months of its current financial year ending April 30 2011, Gamuda posted a net profit of RM116.6 million, 40 per cent more than the same period last year.

The stock has fallen 23 per cent between August 1 and September 22 this year.

Gamuda's stock rating was cut to "hold" from "trading buy" at ECM Libra Capital Sdn Bhd to reflect concerns over the company's "exposure" to Vietnam's property market.

By Business Times

BRDB getting fair deal for assets?

Hogging the spotlight this week was Bandar Raya Developments Bhd's (BRDB) acceptance of Ambang Sehati Sdn Bhd's proposal to buy over its assets for RM914mil, subject to shareholders approval.

Much of the argument and confusion has centred on the valuation of the assets and on BRDB's ability to make up for the loss of income from its investment properties.

The assets in question are BR Property Holdings Sdn Bhd which owns the successful Bangsar Shopping Centre and Menara BRDB as well as the CapSquare Retail Centre and the Permas Jusco Mall. With the proposed disposal, the board proposes to pay a special dividend of 80 sen net per share or RM390mil. While most analysts agree that this is a generous payout, they are more concerned with the company's earnings stream moving forward.

Should this deal be wrapped up by the first quarter of 2012 as targeted, BRDB stands to gain cash of RM860mil.

This is because Ambang Sehati will acquire all the assets and liabilities of BR Property, which will see BRDB netting RM430mil in cash and the repayment of RM430mil in borrowings and dividends from BR Property to BRDB.

Of this, BRDB plans to reduce its borrowings by RM320mil, pay out RM390mil in the special dividend and use the remaining RM168mil for working capital. BRDB's borrowings will drop from 0.71 times to 0.38 times, or from approximately RM1bil to RM248mil.

Ambang Sehati, which owns 18.8% in BRDB, is a private vehicle of Datuk Mohamed Moiz Jabir Mohamed Ali Moiz, who is chairman of the property firm.

BRDB chief executive officer Datuk Jagan Sabapathy has said the proposed sale of the group's investment properties for RM914mil was also based on an initial yield of 6% for the retail assets and 6.5% for the office, was fair.

“At this price and this yield, it is fair. We get to sell our assets at 6% yield, while most people do it at 7%,” Jagan told StarBizWeek recently.

A reasonable deal

“When we first announced this deal, I knew we were going to get walloped. People would say it was a related party transaction and we were selling our best assets,” says Jagan.

“I always believe that we do not sell in a down market. Different people have different horizons. No one has lost money buying properties - but its about their holding power. As BRDB is a public-listed company, it is my job to maximise returns for my shareholders,” says Jagan.

He adds that selling BSC was particularly emotional for him, as he has spent a decade of his life with BSC.

“However, do we ignore the offer by Moiz just because he is a substantial shareholder of the company? It is the fiduciary duty of the board to entertain everybody who puts an offer on our table. There has been more than enough time for people to come to me in the last two weeks to put in another offer. The board has a duty to look at it. No one has come forward to put in a bid,” he says.

Jagan says it is easy for the naysayers to claim that the deal is not fair.

“Lets just say we put it in an open tender, and we get a lower price. What happens then? The board will have to take responsibility. At a yield of 6%, we knew we had to consider this deal,” says Jagan.

On the dividend of 80 sen net per share, Jagan added that every shareholder who was holding on to its shares now would be happy.

“They are getting 80 sen net per share. That is equivalent to a 11 year payout in one year. On average, BRDB has been paying dividends of 7.5 sen every year,” says Jagan.

Jagan added that as the company's gearing now drops to 0.38 times from 0.7 times, it gives the company plenty of flexibility to lookout for more land deals and gear up if necessary.

“Now we have reserves to grow the company. With our existing projects, we have more than enough to compensate our earnings from those four assets,” he says.

Currently, the sale of the assets in question at RM914mil, make up 29% of BRDB's total asset base.

Despite making up almost 26% of BRDB group's total assets, they only contribute less than an average of 5% to BRDB's total revenue and profit before tax for the last three years.

After three years in operation, Capital Square Mall is still bleeding, with the mall losing RM8mil last year. Pikom, (The National ICT Association of Malaysia) has taken over CapSquare mall, and is in the midst of turning it into an Information Technology Centre. As this deal with Pikom spells more sustainability, rental yields will have to go down, to compensate for the longer term nature of the lease.

Is 6% fair?

In the world of real estate, valuers now use the capitalisation rate to value properties. This term is loosely interchangeable with “yield”. Thus, when valuers speak of yield in valuing a property, they are in fact referring to the capitalisation rate. The capitalisation rate is the ratio between the rental income produced by an asset, divided by its capital cost (the original price paid to buy the asset or alternatively its current market value).

In the case of BRDB, the assets in question were valued based on a yield (capitalisation rate) of 6% for the retail assets and 6.5% for the office asset. The capital cost was also the market value of all the properties as of Sept 1, 2011.

CB Richard Ellis Malaysia executive chairman Christopher Boyd says that nowadays, the determinant of the value of a property is gauged by its yield.

This is a departure from the old days where value was determined on a ringgit per sq ft basis.

“Properties are valued on a yield basis because typically, they are now purchased for investment purposes,” explains Boyd.

If a property generates rental income of RM1mil per year, its value will thus be determined by the yield.

“A 10% yield would mean that the property is valued at RM10mil. A 5% yield would value the property at RM20mil while a 20% yield would value the property at RM5mil,”

In other words, a lower yield fetches a higher price, while a higher yield fetches a lower price. It is an inverse relationship.

“So the rental amount is fixed. It is the yield that changes. In Malaysia, the asking yield is typically between 6% and 7%. Most of the large institutions will target for a 7% yield,” he says.

He added that Sunway Real Estate Investment Trust (REIT), which has properties valued at about RM3.7bil, was REITED at a yield of 6.93% in 2010.

This shows that BRDB's valuation of 6% is at ballpark figure.

Sources say that Pavilion Kuala Lumpur, which is slated to be Malaysia's largest initial public offering for a REIT, could be valued at a yield of 7%. Details are still sketchy at this point, but sources say the assets under it could be worth between RM4bil and RM5bil.

According to Hartamas Valuation & Consultancy Sdn Bhd managing director Ricky Lee, the lower the yield, the more secure and sustainable the income flow is, thus translating into a higher market value.

Lee says an investor can compare other secured yields in other types of investments such as fixed deposits, government bonds and the Employees Provident Fund (EPF) which were all below 6%, indicating the degree of security and sustainability of the investment.

“A very high yielding investment normally carries higher risk which in turn would command a lower value.”

By The Star

BRDB aims to deliver RM1bil in property sales annually

Bandar Raya Developments Bhd has residential property developments worth about RM6bil in recognisable gross development value (GDV) over the next three to five years, according to the group's chief executive officer Datuk Jagan Sabapathy.

The group is aiming to deliver property developments worth RM1bil in GDV every year, starting from its financial year ending Dec 31, 2012.

In the Klang Valley, the group's first phase of the Verdana residential development, consisting of two condominium towers in north Kiara, was launched in July with a take-up rate of more than 70% within a month.

The second phase will be launched in 2012 and the two phases are on 4.6 ha with a combined GDV of RM1bil.

Meanwhile, BluWater, a gated and guarded landed community development in Seri Kembangan, Kuala Lumpur, will be launched in four phases through 2011 and 2013.

Spread over 19 ha of waterside land, BluWater has a GDV of RM700mil.

Also set to launch at the end of this year is a residential development in Medang Serai, Bangsar.

Located on 2.4 ha of prime land in Bukit Bandaraya, this development is limited to 121 units and will net RM900mil in GDV for BRDB.

Plans are also in the pipeline to launch luxury residences in Taman Duta, Kuala Lumpur late next year with a projected GDV of over RM900mil.

“Having been established as a leading developer of luxury developments, primarily in the Bangsar neighbourhood, we are now diversifying into newer locations and different target markets. Our vision is to bring forward this unique cosmopolitan Bangsar lifestyle that we have been closely associated with and further strengthen our brand via intelligent design and inspiring aesthetics,” says Jagan.

Earlier this year, BRDB also entered into a joint venture agreement with Multi-Purpose Holdings Bhd (MPHB) to develop land in Penang as well as Mimaland and Rawang in Selangor.

The joint venture in Penang consists of 32 ha of freehold land to be developed near the Penang International Airport with a projected GDV of RM600mil.

The 130 ha Mimaland project is envisioned as a community set amongst natural water features and has a projected GDV of RM2.2bil while the106 ha Rawang development, with a GDV of RM1.4bil, will consist of landed residential homes and a commercial village. These three joint ventures will be launched at the end of 2012.

Another project to look out for is the 10 ha mixed development in Subang with commercial, retail and residential components, which is due to be launched in 2012 with a projected GDV of RM2bil.

In Johor, the third to sixth phases of The Straits View Residences in the Permas Jaya township will be launched over the next two years, with a GDV of RM188mil.

The area will also see the launch of three-storey shop offices with a GDV of RM61mil later this year.

Elita, the final phase of The Straits View Condominium, was recently launched with a GDV of RM89mil.

BRDB also has an agreement with UEM Land Holdings Bhd to jointly develop Puteri Harbour in Nusajaya, Johor as a prime waterfront destination for the region.

To be developed in six phases over seven years, the 44ha development in Nusajaya is expected to have a GDV of RM2.3bil with the first phase scheduled to commence next year.

By The Star

Mah Sing wins big at NST Property Awards

KUALA LUMPUR: Mah Sing Group Bhd won big at the NST Property Awards last night.

Group managing director/group chief executive Tan Sri Leong Hoy Kum was named Property Man of the Year and the group bagged the Best Lifestyle Developer award.

Held for the second time, the NST Property Awards saw the newspaper's property section, Property Times, honouring five nation builders at the Editor's Choice Awards.

The categories were Best Economic Redevelopment Zone, Best Broadband Utility, Best Property Management Company, Best Project Management Company and Best Real Estate Investment Trust. The recipients were Sepang Gold Coast, Telekom Malaysia Bhd, Sunrise Bhd, Andaman Property Management and Sunway Bhd respectively.

Meanwhile, the second S.C. Cheah Choice Awards, named after the veteran property journalist and NST Property Eyes columnist, saw 12 awards given out.

Recipients included Nadayu Melawati for Best Boutique Bungalow Development; K Residence KL for Best Luxury Residential Highrise Development; Ivory Properties Group Bhd for Best Penang Developer; Sagajuya (Sabah) Sdn Bhd for Best Sabah Developer; Superboom Projects Sdn Bhd for Best Perak Developer; Platinum Park for Best Iconic Development (by Naza TTDI Sdn Bhd); and The Haven Lakeside Residences for Best Resort Condominium (by The Haven Sdn Bhd).

By Business Times

Beijing developer to invest RM2b in Iskandar

KUALA LUMPUR: Iskandar Malaysia is set to receive some RM2 billion investments from a Beijing-based real estate developer.

Zhuoda Real Estate Group yesterday signed two memoranda of understanding with Iskandar Investment Bhd (IIB) to buy land and develop mixed residential and commercial projects in Medini, IIB's flagship development in Iskandar Malaysia.

The first deal is for the development of a residential project at Medini North, with Zhuoda buying a plot of land there for US$53 million (RM158 million) and investing another US$389 million (RM1.2 billion) to develop it.

The second one is for Zhuoda to lease 40,000 square metres for about US$24 million (RM70.8 million) and invest another US$169 million (RM520 million) to develop it.

"The definitive agreements are scheduled to be signed at the 3rd World Chinese Economic Forum in Kuala Lumpur on November 3," IIB said in a statement released in Beijing yesterday.

The project in Medini North, the leisure and tourism destination in Iskandar Malaysia, will be a joint venture between IIB's subsidiary Medini Iskandar Malaysia Sdn Bhd (MIMSB) and Zhuoda.

To be 80 per cent owned by Zhuoda, the joint-venture company will build residential units on about 73,000 sq m site.

IIB president and chief executive officer Datuk Syed Mohamed Syed Ibrahim said this is the first major investment by a Chinese property development company in Iskandar Malaysia.

"Bilateral trade between China and Malaysia is expected to rise to at least US$80 billion (RM239.7 billion) in 2011 and IIB's partnership with Zhuoda will further support the efforts by both governments in promoting two-way investment between the two countries," he said in the statement.

Zhuoda chief operating officer Yang Han Qing said the company, established 18 years ago, has a total asset value of US$7.8 billion (RM24.1 billion) and net asset value of US$6.6 billion (RM20.2 billion).

"This signing is a milestone for Zhuoda's initial overseas investment and a landmark in Zhuoda's history to become a globalised company," Yang said.

According to the Iskandar Regional Development Authority, Iskandar Malaysia has recorded a total cumulative investment of US$25 billion (RM75.96 billion) from November 2006 to June 30 2011. Foreign investments accounted for 40 per cent of this amount.

By Business Times

Big drop in BLand Q1 net profit due to slower hotel, recreation and MICE businesses

PETALING JAYA: Berjaya Land Bhd (BLand) posted a huge year-on-year dip in net profit to RM1.88mil for its first quarter ended July 31 from RM44.5mil in the corresponding quarter last year.

This was attributable to lesser profit contribution from its hotel and recreation business due to lower occupancy rates, and reduced sales from the meeting, incentive, convention and exhibition sector (MICE).

“The lower profit was also due to the impairment of available-for-sale quoted equity investments as well as unfavourable changes in fair values of quoted equity investments,” BLand told Bursa Malaysia.

It should be noted that the results of the preceding year's corresponding quarter included an exceptional gain on the disposal of an associated company amounting to RM53.2mil.

In terms of pre-tax profit, the quarter under review recorded RM94.8mil against RM112.4mil a year ago.

BLand achieved RM1bil revenue in the quarter compared with RM978.9mil in the period a year ago. The higher revenue was mainly contributed by its gaming business via Berjaya Sports Toto Bhd's principal subsidiary, Sports Toto Malaysia Sdn Bhd, and the improved sales registered by its property development division.

CIMB Research said BLand's property EBIT (earnings before interest and taxes) plunged 82% year-on-year to RM1.6mil due to poorer margins while the hotel EBIT fell 6.4% year-on-year to RM9.9mil.

The brokerage said the potential downside catalysts for BLand's share price performance were the poor first-quarter results, execution risks for its overseas projects and continuous losses for its club division.

CIMB Research maintained its “sell” call on BLand shares with a target price reduced to 93 sen from RM1.11. The counter closed 2 sen higher to 95 sen yesterday.

By The Star

SP Setia expands Aussie landbank

PETALING JAYA: SP Setia Bhd is expanding its landbank in Australia through subsidiary SP Setia International Ltd with an investment of RM81mil for its second property project in Melbourne.

The project has an estimated gross development value of A$250mil (RM772mil). It told Bursa Malaysia that SP Setia International had entered into a contract of sale with Portbridge Pty Ltd to acquire the freehold land.

By The Star