Two big questions for BRDB

A file photo shows BDRB’s Bangsar Shopping Centre.

Two big questions are yet to be answered in Bandar Raya Development Bhd's (BRDB) recently announced related-party transaction. At what price the key assets will be sold to Ambang Sehati Sdn Bhd and what management plans to do with the cash proceeds from the proposed disposal.

A few days ago, it was announced that BRDB's major shareholder, Ambang Sehati, had proposed to acquire selected investment assets to “enable the group to monetise these assets and achieve a more efficient utilisation of its capital”.

Ambang Sehati is the private vehicle of BRDB chairman Datuk Mohamed Moiz Jabir Mohamed Ali Moiz, who owns 18.8% of BRDB. The assets essentially include the Bangsar Shopping Centre, Menara BRDB, CapSquare Retail Centre and Permas Jusco Mall.

BRDB said the purchase consideration would be based on fair value that would be determined by independent valuers. BRDB has up to Sept 19 to revert with its decision. This acquisition will be paid fully by cash.

According to BRDB's 2010 annual report, the carrying value for Bangsar Shopping Centre and Menara BRDB is RM660mil while Cap-Square Retail Centre and Permas Jusco Mall are valued at RM214mil and RM68mil, respectively.

The jewel of the assets would be Bangsar Shopping Centre, which is located in the prime Bangsar area and has a net lettable area of 330,000 sq ft.

Bangsar Shopping Centre is currently almost fully occupied with average rental rates of about RM10 per sq ft. On the other hand, activity in CapSquare has much room for improvement and is relatively quiet after office hours.

“Only the food and beverage (F&B) area is doing okay. The mall isn't exactly bustling with activity. Selling it off may be a good idea,” says a property analyst.

He says that based on estimates, the four properties would fetch a value of about RM960mil, with Bangsar Shopping Centre accounting for 64% of that, valuing it at RM594mil (or RM1,800 per sq ft).

Currently, the group has a net gearing of about 0.4 times with total borrowings in the region of RM780mil. The bulk of the debt is tied to its CapSquare development.

The group could have excess cash of RM120mil to RM150mil, or 25 sen to 30 sen per share, after paying off its outstanding debt, says the analyst.

He does not think rewarding shareholders with bumper dividends are right at this point.

“Apart from reducing its gearing, we think the group would be better off deploying the cash for its property development, either for landbanking or to fund its future development.

“BRDB is not as aggressive as other developers in developing its properties and land bank. Without Bangsar Shopping Centre, earnings may not be as stable,” he adds.

An industry observer says BRDB may be doing the right thing by disposing of Bangsar Shopping Centre and the other retail outlets.

“Are the returns from these outlets actually attractive? Earnings-wise, it is only delivering some 20% to operating profits. This is low when compared to the amount of capital expenditure and debt the company is taking up.

“Also, when I walk into Bangsar Shopping Centre, it is the F&B segment which is doing well. If Bangsar Shopping Centre continues to charge rentals at a premium, how will the normal retail tenants be able to survive?” asks the observer.

In 2008, BRDB was reported to have invested RM250mil to upgrade Bangsar Shopping Centre. The renovation was completed in 2009.

Another property analyst says much depends on what BRDB does with the cashpile it receives from the sale of the properties.

“Bangsar Shopping Centre now provides stable earnings. Selling it off will only yield a one-time dividend. However, what happens after that? Management needs to use the cash proceeds wisely,” he says.

Meanwhile, an AmResearch analyst says that BRDB's latest project, Verdana North Kiara condominum, has been well received, with take-up rates averaging 70%-80% for the first phase.

There are two blocks with 250 units on offer at an average selling price of RM600 per sq ft. The price represents an 8% discount to the ongoing rate at its neighbouring Mont Kiara of about RM650 per sq ft. Verdana has a gross development value (GDV) of some RM600mil.

BRDB has another condo development in Bangsar with a GDV of some RM900mil which will likely be launched next year.

“Timing-wise, BRDB has been a little slow. It should have launched its products earlier this year when demand was extremely hot,” says the property analyst.

At present, BRDB has a joint venture with Multi-Purpose Holdings Bhd (MPHB). It is centred on developing 268ha in Mimaland (Gombak), Rawang and Penang with an estimated GDV of RM4.25bil after 2012.

Last November, BRDB signed supplemental agreements with UEM Land Bhd, the master developer of Nusajaya, to buy a 60% stake in a special-purpose vehicle used for the development of Residential North in Puteri Harbour.

The project, on a 111-acre freehold parcel, is expected to be completed in six phases over seven years. The expected GDV is RM2.3bil.

For its quarter ended June 30, BRDB's revenue stood at RM198.9mil, of which RM152.05mil came from property development while RM28.25mil was generated from property investment.

Operating profit derived from the two divisions was RM31.02mil and RM10.62mil, respectively.

For its financial year ended Dec 31, 2010, revenue dropped 31% to RM626.21mil as the group came to the completion on a number of different projects.

Net profit, however, improved 8.7% to RM125.6mil as its property and wood-based divisions were mitigated by higher rental income and fair value gains from investment properties.

By The Star

If it helps rein in soaring house prices, why not?

A proposal by Bank Negara Malaysia to change the way mortgages are calculated is excellent. It will greatly reduce the amount the public can borrow.

More than three years ago, my wife and I missed a chance to own our dream double-storey terrace house in Bangi. The price was about RM230,000 or RM217,000 after a 7 per cent rebate for Bumiputeras.

That house was under the first phase of a new township, whose units were snapped up within hours. A few months later, the second phase was launched, and the units under it, with slight upgrades from the previous phase, started from well over RM300,000 and were literally sold out too within hours.

I don't know exactly how the price for a more or less similar product had risen dramatically within a short span. My guts told me that it was due to a combination of the developer's reputation and quality and great demand for new houses in Bangi. Or perhaps, it's because of expectations (read speculation)?

Some observers said property rides on expectations. If people expect prices to go up in a foreseeable future, many may find out that properties will forever be out of their reach. Indeed, property prices in Malaysia have never eased during the past few years. As it stands today, the affordability ratio has gone through the roof.

A survey done by a publication on housing affordability saw property prices increasing from 5.9x income in 1989 to 10.9x in 2010. Left unchecked, it will soon climb to 15x your annual income.

It is also reported that the household debt-to-GDP (gross domestic product) ratio in the country has reached nearly 76 per cent, which is on the high side compared with our counterparts in Southeast Asia.

Hence, a proposal by Bank Negara Malaysia to change the way mortgages are calculated is excellent. It will greatly reduce the amount the public can borrow. The computation is supposed to be based on net income, and not gross income. That could reduce the amount that can be borrowed between 14 per cent and 37 per cent, according to a research house.

Certain parties can sigh and whine, but such proposal is a belated move to curb rising household debt. Yes, there could be an impact on the demand for affordable properties priced between RM100,000 and RM300,000. Yes, there could be slower take-up rate from the low- and middle-income segments that will result in the long run, slower delivery of affordable housing projects. And yes, ordinary wage earners could be affected more than the high-income segment.

But any good move to nip the household debt in the bud should be lauded. In other words, any good move to cool down soaring housing prices (and credit card loans) must be supported.

By Business Times

Utusan unit in property development JV

KUALA LUMPUR: Utusan Melayu (M) Bhd's wholly-owned subsidiary Juasa Holdings Sdn Bhd has entered into a joint-venture agreement with Insan Tiara Sdn Bhd to develop a RM6.8bil land in Kuala Lumpur into a mixed commercial industrial project.

Utusan said the completion of the project, consisting an eight-storey building with sub-basement and two floors of car park, shall be within four years from the delivery of vacant possession of the property with a further extension of two years.

By Bernama

Sime's planned E&O purchase gets analysts' thumbs up

KUALA LUMPUR: Sime Darby Bhd's planned purchase of a 30 per cent stake in Eastern & Oriental Bhd (E&O) last week will revive its flagging property business and also give it exposure to the Penang and Johor markets, analysts said.

For JP Morgan, the deal signals a more aggressive strategy from management to improve the property division.

"Sime's property division has generally been viewed as lacking push or not as aggressive as the purer developers.

"As it is, in the recently announced 2011 results, the property division was the underperformer with a 7 per cent year-on-year contraction in profits due to delays in obtaining approval for launches," it said in a research report.

Deutsche Bank AG said Sime is not present in the Penang property market currently and the deal would allow collaboration to enhance its property business in the long run.

Analyst Eltricia Foong said property development is estimated to account for 7 per cent of Sime Darby's 2012 operating profit.

"We reiterate our hold recommendation on Sime shares with a target price of RM9.30," the analyst said, adding that funding should not be a worry given its solid balance sheet and its recent RM690 million fabrication yard sale.

Sime Darby has proposed to buy the 30 per cent stake last week for RM766 million.

In Johor, E&O has a joint venture with Khazanah Nasional Bhd and Singapore's Temasek to develop a 84ha wellness township.

By Business Times

Ireka to buy Kajang land

IREKA Corp Bhd, a property developer, plans to buy a parcel of freehold land in Kajang for RM22.43 million cash.

The land, measuring 83,339 sq metres, is located within the Bukit Angkat Industrial Zone and is intended for a gated and guarded mixed-use industrial development, said Ireka in its filing to Bursa Malaysia yesterday.

“The concept for this development is in the preliminary stage, no submissions have been made to the authorities yet.

The total development cost and expected profits will be determined after the development order has been obtained at a later stage,” it said.

By Business Times

Juasa, Insan Tiasa to develop RM6.8b land

Utusan Melayu (Malaysia) Bhd's wholly-owned subsidiary, Juasa Holdings Sdn Bhd, has entered into a joint venture agreement with Insan Tiara Sdn Bhd to develop a RM6.8 billion land in Kuala Lumpur into a mixed commercial industrial project.

Utusan said the completion of the project, consisting an eight-storey building with sub-basement and two floors of car park, shall be within four years from the delivery of vacant possession of the property with a further extension of two years.

"The proposed project will enable Utusan to enhance the value of its existing property and create a new source of income from property rental," it said in a filing to Bursa Malaysia today.

By Bernama

Risk profile change for Bandar Raya Developments

PETALING JAYA: The proposed sale of Bandar Raya Developments Bhd's (BRDB) investment properties to major shareholder Ambang Sehati Sdn Bhd will have a negative effect on BRDB's business risk profile over the longer term, according to RAM Ratings.

In a statement yesterday, it pointed out that should the proposed deal go through, BRDB would be divesting all of its investment properties, which have been providing a stable source of recurring rental income.

“The divestment will steer BRDB towards becoming a pure property developer. This, in our opinion, heightens the group's business risk,” said RAM Ratings.

By The Star

Shanghai banks tighten mortgage lending paper

BEIJING, Sept 9 (Reuters) Chinese banks in Shanghai have either stopped mortgage lending or are making it harder to get loans, the official China Securities Journal reported on Friday.

The central bank's recent move to widen the base of total deposits that banks must set aside for reserves further crimped banks' ability to lend, while record high home prices are also making them nervous, the newspaper said, citing unnamed banking sources.

Banks in Shanghai that the newspaper visited have taken various steps including halting mortgage lending, extending loan approval times because of tight quotas, excluding applicants whose homes are old or expensive or raising mortgage rates beyond regulatory requirements, the paper said.

China has rolled out a slew of measures since late 2009 to curb property speculation and rein in runaway housing inflation.

So far, they have yielded some results and there are growing signs that home prices are starting to fall in some cities where they have gained rapidly in the past few years.

The top banking regulator has constantly warned against lending to the real estate sector, but has also repeatedly reaffirmed that Chinese banks could withstand home price falls of up to 50 percent.

By The Star

London's hotspot property prices to double

LONDON, Sept 9 (Reuters) Property prices in some central London hotspots are set to more than double by 2016, driven up by a mix of factors including volatile financial markets and major new transport projects such as Crossrail, according to a report from estate agency Knight Frank.

Domestic and overseas buyers have flocked to the London residential market in recent years as they look for a safe place to park their money.

"It's really seen as safe haven for global money. We ran some figures showing how prime property is doing in terms of asset classes ... it beat the FTSE 100 tracker over the last 10 years by quite a long margin," said Grainne Gilmore, Knight Frank's head of UK residential research.

"It certainly gives gold a run for its money," she added.

Meanwhile the Crossrail development, Europe's largest infrastructure project, will link Heathrow west of London to the east of the city through huge new tunnels to be run under the city.

"Crossrail is a massive theme going through this ... it's going to change a lot of things. If you live in Barbican or Farringdon (adjacent to the City financial district) you're going to be able to get to directly to three airports within minutes," she said.

As a result prices in this area and the City are set to rise 118 percent by the end of 2015, second only to the Vauxhall area in south London, where prices are forecast to jump 140 percent thanks to the redevelopment of Battersea Power Station along with U.S. plans to build its new London embassy just down the road.

RIOT PROOF

The Knight Frank report added that there are 13 hotspots which will outperform even the 30 percent increase in prices expected in prime central London by the end of 2015.

But the gap between prime central London prices and the rest of the country is widening, as growth has already soared over 10 percent this year.

"There is a possibility we could see strong doubledigit growth by the end of this year ... the figures just keep getting stronger," said Gilmore.

House prices have fallen in all areas of England and Wales in the past 12 months, except London, with prices falling nearly 9 percent in the north east region, according to recent data from the Land Registry.

"We definitely wouldn't class what is happening at the moment as a bubble ... The fundamentals of the market in London are quite different to what they were in the rest of the UK (before the property crash)," Gilmore added, as buyers are cashrich and not reliant on cheap credit.

Even last month's riots have failed to put off buyers from all over the globe, which account for just under half of investors, said Knight Frank, attracted by the political and fiscal stability and high standard of education in the UK.

In a separate statement earlier this week, CB Richard Ellis said sales rates in London had improved for prime products and apartments with growth potential.

"The top end of the market is attracting such a wide range of buyers from all over the world that it is in effect insulating itself from any one economic cycle," said Jennet Siebrits, head of Residential Research at CBRE.

The highestselling develpment schemes so far in 2011 have had exhibitions in Asia as buyers in Hong Kong take advantage of a currency discount of about 20 percent.

Meanwhile major regeneration projects add nearly 5 percent to house prices in neighbouring areas, according to new research from CBRE, with the 2012 Olympic Games development lifting prices by 14 percent in the surrounding area.

By The Star

Kosmopolito to build another hotel in KL

KUALA LUMPUR: Kosmopolito Hotels International Ltd, a subsidiary of Far East Consortium International Ltd, plans to build another hotel in Kuala Lumpur next year.

At present, works are being done to get itself ready to launch its first hotel in Cheras under the brand name Silka before the end of first quarter next year. The hotel is expected to be part of a new mall, which is located at where Phoenix Plaza used to be.



"In the pipeline, are two projects in KL. Directly across the hotel, there's a Sri Jati Serviced Apartment. We plan to tear it down and rebuild and turn it into a budget hotel. We have received the local authority's approval. We should be starting our development and construction works sometime next year, ideally after Chinese New Year.

"We are still debating if it will be branded as Silka, or as a true-blue budget hotel," said Dorsett Regency Hotel area general manager Christina Toh.

It currently has five hotels in Malaysia. They include Grand Dorsett Subang, Dorsett Regency KL, Grand Dorsett Labuan, Silka Hotel Johor Baru and Maytower Hotel & Serviced Residences KL.

Toh was speaking to reporters after the company presented 12 of its managers with the Coaching and Mentoring Professionals (CCMP) Certification.

The company worked with The Institute of Training and Development to come up with programmes to help improve the leadership abilities of its managers.

"Not many out there are developing people. Today, people work for a company not purely based on how much they are paid, but also for career development and whether the company helps to improve their skills for career advancement," said Azizah Ismail, Kosmopolito Hotels area director of human capital.

With the CCMP programme, she hopes the company is able to maintain or improve its staff retention rate.

"Currently, our staff turnover rate is below the industry average which is about 10 per cent. For us, some of our hotels are doing about 1 per cent, but on average, we are doing about 5 per cent, which is significantly below the industry average," said Azizah.

By Business Times

SP Setia gets nod to build extra units on Penang Island projects

SP Setia will develop the Penang People's Park project on the grounds of the Penang International Sports Arena (Pisa). Pisa is an indoor sports arena close to the Penang International Airport.

GEORGE TOWN: The Penang government has set a precedent for housing developers in the state by allowing SP Setia Bhd to build extra units within any of its developments on the island over the next 30 years.

This comes under a build-operate-transfer (BOT) concession agreement that was signed on August 19 between the Municipal Island of Penang Island (MPPP) and Eco Meridian Sdn Bhd (EMSB), a wholly-owned subsidiary of SP Setia.

A summary of the concession, which was prepared by MPPP's legal unit and disclosed yesterday, said MPPP agrees to grant EMSB the right to additional density of any SP Setia developments within Penang Island and this would be over and above the maximum permissible density for the land.

This must not exceed 1,500 residential units spread out on the island during the concession period.

The concession period is for 30 years and EMSB is also entitled to apply for a renewal for two further terms of 15 years each.

Pisa was completed in 2000 and sits on more than 10 hectares, serving as the largest and most comprehensive multi-purpose indoor venue on Penang Island.

The arena, which is owned by the Penang Island Municipal Council and managed by Penevents Sdn Bhd, boasts an Olympic-sized swimming pool and a spacious air-conditioned area, which has been designed to host conventions, exhibitions and entertainment shows, along with major sporting events.

The new project, estimated to cost up to RM300 million, is made up of three components - which include an international convention and exhibition centre, along with refurbishment works to the existing indoor stadium and aquatic centre respectively.

The concession also compels EMSB to build 450 low medium-cost housing units.

"The State Authority shall provide a piece of land for the purpose of the same," the summary of the agreement said.

The deal also stated that MPPP has agreed to sell and transfer part of the 10 hectare plot to EMSB for the purpose of a hotel site with a leasehold title of 99 years.

The purchase price of the hotel site is RM13.7 million.

By Business Times

Bank Negara move can affect housing demand

GEORGE TOWN: Slower affordable property launches and less demand for such properties are some of the consequences of the proposed move by Bank Negara to assess housing loans on net income rather than on gross income.

Registered and chartered valuer C.A. Lim & Co proprietor Lim Chien Aun told StarBiz that there would be an impact on the demand for affordable properties priced between RM100,000 and RM300,000.

The proposed move to assess the eligibility for housing loans on a net income basis would lower affordability by 14% to 37%, said a recent RHB Research Institute report.

“We will definitely see slower take-up rate from the low and middle-income segments, resulting in the long run slower delivery of affordable housing projects.

“Ordinary wage earners will be affected more than the high-income segment.

“Unless the Government is willing to lower the price of affordable housing in the country, the proposed move, if implemented, may not support Government's objective of promoting affordable housing projects,” he said.

Chartered valuer and property consultant Azmi & Co (Penang) Sdn Bhd managing director Chandra Mohan Krishnan said there would be a slowdown in the delivery of houses, especially those priced from RM100,000 to RM300,000, as the eligibility of those in the low and middle income segment for housing loans would be affected, if the move was implemented.

“I don't encourage this move to be implemented now, as this would generate a chain of effects, although the intention is to curb speculation,” he said.

On the impact of the move on property prices, Henry Butcher Malaysia (Penang) director Dr Teoh Poh Huat said there would be additional downward pressure.

Real Estate & Housing Developers' Association (Penang) chairman Datuk Jerry Chan said, for example, the impact of the move would be more noticeable on the island than in Seberang Prai where the property market was less speculative.

“Developers who have lined up easy and high percentage financing for its projects will feel the brunt of the proposed move.

“New projects from such developers would assume a slower pace. Property buyers with high leverage for property purchase will also be affected.

“We can expect to see a slower takeup rate from this category,” he said.

Chan said the move, however, would not impact very much on property prices, due to high land cost and strong holding power of major developers in Penang.

They were commenting on Bank Negara's proposed move to curb rising property speculation, as household debt in the country, as measured by household debt to annual gross domestic product ratio, had surged to a record high level in 2009 and 2010, largely stimulated by low interest rates and easy financing scheme for property purchase.

The household debt to GDP ratio in the country has reached nearly 76%, which is on the high side compared with countries in South-East Asia.

Meanwhile, Penang-based Ideal Property Development Sdn Bhd plans to launch projects with about RM400mil in gross development value over the next 12 months, compared with RM600mil as originally planned.

By The Star

Sime-E&O deal — what about minority shareholders?

Sime Darby had on Aug 27 announced its intention to acquire 273 million Eastern & Oriental Bhd (E&O) shares and 60 million irredeemable convertible secured loan stocks (ICSLS) in E&O, which, on a fully diluted basis, amounts to a roughly 30% equity interest in this niche property developer.

Sime offered RM2.30 for each E&O share, or a total of RM766mil ringgit for the block, with the sale shares coming from just three main groups: Datuk Terry Tham Ka Hon, E&O's managing director, Singapore-listed GK Goh Holding Ltd and a group led by Tan Sri Wan Azmi Wan Hamzah, formerly of Land and General Bhd.

Sime has cited its reasons for the acquisition as being “aligned with its strategic direction to extend its presence in the property development and hospitality sectors, beyond the Greater KL region, specifically in Penang and Johor.”

Will there be a mandatory general offer (MGO) for the rest of E&O's shares, since the combined block passing to Sime does not cross the necessary quantitative 33% threshold for it to take place, is a question which is being asked in corporate circles.

According to the Mergers and Acquisition Code, in instances where a party buying stakes of between 20% and under 33%, there can be deemed to have been created a situation triggering an MGO.

These instances are laid out in Practice Note 9 of the Malaysian Code on Take-overs and Mergers 2010 and largely involve situations where there is some arrangement between the vendor of the block of shares and the new buyer on how they are going to vote on company decisions, the ability of the acquirer to exercise control of the retained voting shares and the consideration.

Our analysis is as follows.

With 30%, normally companies would be able to have effective control when there is fragmented shareholdings.

The vendors are selling only part of their shares and will have still 11.5% left among them.

The biggest owner, Tham, who owns 15.7%, will still end up with a 5.1% stake post-acquisition dilution.

A 60% premium is being paid, which is not something that can be scoffed at.

Where does this leave the minority shareholders? Is it fair to them?

We believe that in the circumstances, the Securities Commission should investigate whether the other conditions for an MGO have been fulfilled.

And what of Sime's minority shareholders?

Arguably, does Sime really need E&O all that much at that price?

Much has been made of the mega-merger that integrated the property arms of the former Golden Hope Plantations Bhd, Kumpulan Guthrie Bhd and Sime Darby Bhd, which has given the group a massive and undeveloped landbank of 37,000 acres, as well as 126,000 acres in Sime Darby Vision Valley.

With this massive amount of land on tap, Sime Darby Property's gross development value now stands at RM30bil.

This purchase is one of the biggest developments since its leadership change, and as a leading government-linked company (GLC) which seeks to practice good corporate governance, an arguably more beneficial deal to all parties could have been proposed.

The main sore point is the offer price which amounts to 19 times E&O's forecast earnings for 2012 and 1.85 times its price-to-book value, where by comparison, the property sector has an average of 12 times forecast earnings for 2012 and 0.8 times price to book value.

Yes, the premium could be partially justified since it is a controlling block, but with a mere 30% stake, the extent of earnings contribution accruing to Sime is merely at the equity-accounting level as an associate, or a mere 0.6% increase to Sime Darby's profits in 2012 and 2013.

So soon after reeling from its recent billion-ringgit losses in its energy division, it is hoped that the board had undertaken all due diligence in this deal.

By The Star

UOA Dev climbs on winning hotel job

UOA Development Bhd, a Malaysian property developer, rose the most in a week in Kuala Lumpur trading after winning a RM101.4 million-contract to build a hotel in Kuala Lumpur.

Its shares climbed 2 percent to RM1.53 at 9:03 a.m. local time, set for their biggest increase since Sept. 2.

By Bloomberg

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.

By AFP