City&Country: Cover Story-- Revitalising The Summit USJ

The Summit USJ is a 12-year-old landmark mixed development on the fringes of the mature USJ township in Subang Jaya. Following its injection into AmFIRST Real Estate Investment Trust (AmFIRST) two years ago, it has slowly been shedding its quiet, rundown image.

The exterior has undergone a modest facelift — the retail podium’s glass roof has been cleaned, the vegetation around the entrance tamed and the hardscaping updated to include colourful installations that cheerfully spell out “Welcome”. Its transformation is anchored in the 800,000 sq ft, six-level retail podium, which, together with the 13-storey office tower, 17-storey hotel and car park, forms the entire project.

A mall management team, led by Am ARA REIT Managers Sdn Bhd (Am ARA) CEO Lim Yoon Peng, or YP Lim as he is known in REIT circles, has taken up the challenge to create a sustainable and relevant retail complex atmosphere in Summit’s mall, a suburban stratified neighbourhood complex, through its clout in the joint management committee (JMC). The goal is to maximise shareholder yields.

Part of the revitalisation strategy entails refurbishing the mall, updating and redistributing the tenant mix as well as changing the attitudes of lot owners and tenants, Lim tells City & Country.
Am ARA manages AmFIRST. It was set up by AmInvestment Group Bhd (AIGB) and ARA Asset Management (Malaysia) Ltd (ARA) on a joint-venture basis. The former owns 70% of Am ARA while the latter owns the remainder.

Noting the mall’s “sunset” image was an “interesting” observation, he says: “We would not have bought this multi-million ringgit asset if it were going to be left to rot.”

Challenges
When Am ARA first acquired the property, the facilities such as lifts, car park and stairwells were poorly maintained. Some lots were empty while others looked dingy and unappealing.

Stalls, tables and chairs were haphazardly set up in open spaces and walkways and some tenants would smoke inside the building, he says.

It was clear what needed to be done, but the mall’s stratified structure was a challenge. Nevertheless, since 2008, the fund has managed to increase its ownership of The Summit USJ complex which gives it greater clout in the JMC, a help in executing its strategy. The fund had initially acquired from its original owner Meda Inc Bhd  some 562,102 sq ft (67%) of 840,000 sq ft strata retail space, 108,500 sq ft (nine floors) of the total 156,720 sq ft of strata office space and the hotel for RM260 million. The REIT has since acquired another three floors of the office tower bringing its ownership to 92% of the office space and 85% of the entire Summit USJ complex.

“As I am the chairman of the JMC, we can set some house rules like ensuring that all our tenants in our space open by 10am,” he explains.

While the other tenants in the non- REIT-owned space were out of its control, the REIT manager made it a point for its tenants to follow these rules.

In time, Lim says, more tenants in the individually-owned lots began to discard their old habits and adopted the rules.

Conceding that the fund will never own the entire mall, as lots were bought by investors looking for rental income, it will instead target the acquisition of “strategic and sizeable lots”.

“We recently announced that we were buying up one huge lot on the second floor, measuring 37,372 sq ft,” he says. The property is currently tenanted by Handi-Arts Sdn Bhd and AYA Network Bhd, according to the announcement in September.

“I could rezone it into a Kids Zone or an IT Zone. But if I buy an 800 sq ft lot, I can’t do much,” Lim explains.

“So it will be a progressive acquisition. I think, if the latest acquisition is completed (within five months after the sale and purchase agreement has been executed), we will own almost 70% of the mall. If we own up to 75%, we can then manage the mall effectively.”

Upgrades
AmFIRST’s 192 retail lots in The Summit USJ are expected to be 90%-tenanted by its financial year end of March 31, 2011 from the current 80%.

Monthly rent revenue has grown by about 7% in the two years since the property was injected into the REIT.

It has also persuaded 17 new “branded retailers”, including two new small anchor tenants — the Basketball Academy and the Ministry of Youth and Sports’ Dome Paintball — to set up shop. Some 19 suitable brand names have had their tenancies renewed in line with the mall’s branding upgrade as well.

The RM3 million refurbishment of the hotel was completed last month, says Lim. The rooms and corridors have been upgraded.

The conversion of each office level into a SoHo unit and the upgrading of the common corridors and facilities in the office block began in June. The car park is getting a fresh coat of paint while fixtures and lights are being repaired at a cost of RM2.5 million. Work is slated for completion next month.

Lim says the the JMC will upgrade the mall in three phases which involve an upgrade of the facilities, repositioning of the tenant mix and other major infrastructure-related changes.

The exterior beautification, including landscaping and hardscaping began in May and was completed in June at a cost of RM240,000.

The rest of the exterior improvements had to be put on hold due to the proposed extension of the light rail transit (LRT) system to the area. Earlier this year, the government compulsorily acquired a 1.02-acre parcel of land in front of the mall from the JMC for RM10 million.

The remaining external beautification — improving the façade, floor, ceiling and balustrades as well as an overhaul of the lifts and traffic reconfiguration — will run concurrently with the LRT extension work, which is expected to begin sometime soon.

For the interior, the JMC has rezoned the lower ground floor into a Food Junction at a cost of RM350,000, while the first and third floor will be re-themed as Fashion Street and Entertainment and Leisure Zone at a cost of RM100,000 and RM350,000.

According to Lim, major tenants such as Fitness First, Little Taiwan and MPH usually seek lots that are at least 2,000 sq ft so the larger lots in its portfolio may be rented out to these parties.
Am ARA also tries to help the owners of smaller stalls to rent out their lots “as the initiative has to come from us”, he says.

Lim says the JMC has allocated RM2 million a year for advertising and promotions, with emphasis on reaching out to the community, creating customer loyalty through events with youthful and creative themes.

The JMC has organised a number of events in conjunction with the football and festive seasons to make the mall more exciting. It recently organised a Halloween celebration where actors posing as ghosts interacted with visitors.

For Christmas, the JMC has invited Crayon Shin Chan, a popular Japanese comic book character, to perform at The Summit USJ. He will appear exclusively at the mall, Lim says. Crayon Shin Chan was chosen for his popularity across races and age groups, he adds.

The target market of the mall has always been and will continue to be the residents of USJ, says Lim.

This is because the area has a catchment of 1.2 million people within a 10-minute drive with a monthly average household income of RM8,000 to RM12,000, he says.

“We are not a destination mall such as Suria KLCC and we find that most of our visitors are frequent visitors from USJ.

“What we offer here is convenience. You can fulfil your daily needs on a budget and eat ‘branded’ clean food. We want to stay loyal to the USJ community,” he says.

Challenge in implementing changes
One unit owner, Tan, says improvements have been gradual, but most tenants and owners are satisfied with the progress made, largely in upgrading the facilities such as the washrooms, air-conditioning and lifts as well as refurbishing the lower ground, ground and first floors.

What is needed now is to work out strategies to draw visitors to the quieter second and third floors and fill up untenanted lots, in addition to repositioning the floors, he says.

The JMC is currently conducting customer surveys to understand what makes them tick, he adds.
“AmFIRST is trying to do a lot of things, but it takes time,” Tan says.

Echoing Lim, he says it is hard for the JMC to reposition the mall and apply changes effectively as about 30% of the mall is owned by individuals.

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 833, Nov 22-28, 2010