UOA Development Bhd is ready to scale new heights with its upcoming listing on the Main Market of Bursa Malaysia. The company expects to launch its prospectus and complete its listing by June 2011.
UOA is a unit of United Overseas Australia Ltd, which was founded in 1987 and listed on the Australian Stock Exchange with a market capitalisation of RM770 million at current exchange rates. Since 1989, the group has based its headquarters and business operations in Kuala Lumpur. UOA is also listed on the Singapore Exchange.
The group listed UOA Real Estate Investment Trust (UOA REIT) on Bursa in 2005.
According to David Khor, COO of the company’s development division, the move to list the property arm after a presence of 21 years in the Malaysian property market is a significant push towards achieving excellence in the industry.
“Our objective of listing the company is to allow it to tap into the Malaysian capital market to further strengthen our financial position. This exercise will facilitate our continued expansion in Malaysia’s real estate market,” he says.
The listing is also expected to raise the profile of the developer in Malaysia and allow investors and the public to participate in the company’s equity, he tells City & Country. In an interview with China Daily USA, director Alan Charles Winduss said that the developer is planning to raise about RM1.2 billion to fund expansion and retire debt.
As at Dec 31, 2010, UOA had a total saleable and lettable area of more than three million sq ft under development with an estimated gross development value (GDV) of RM2 billion and to be completed over the next three years.
The developer is holding a potential saleable and lettable space of more than 12 million sq ft with an estimated GDV of RM8 billion for future development. Khor believes the current market is favourable to IPOs, of which there were 10 as at April 18 compared with 29 in 2010 and 14 in 2009, according to Bursa statistics.
“We are optimistic about our IPO in view of the various initiatives recently undertaken by the government, such as the Economic Transformation Programme, the Klang Valley light rail transit expansion plan and the recent mass rapid transit proposal. Other than that, we are backed by the strong economic forces of the local economy,” he explains.
UOA is also aware of the risks involved in the property market, which Khor sees as exposure to external factors such as fluctuations in demand and supply in the property industry that are largely dependent on the economic climate and interest rates as well as rising prices of raw materials and other related factors.
“We have weathered various economic downturns and we believe developments which are of value and in good locations will always receive good take-up rates. We make it a priority to maintain financial discipline to ensure that the company remains strong in the event of a property market downturn,” he says.
An early pre-marketing run shows positive interest from local and overseas investors and as part of its book-building for the IPO, UOA will soon hold roadshows on both the local and international fronts.
Addressing the drop in the company’s revenue over the last two years, Khor says the financial results were not reflective of its activities or level of sales but merely a result of the timing of revenue recognition of its development properties for accounting purposes.
“For example, in FY2010, we secured substantial new sales which would primarily only be recognised in FY2011 and FY2012 as the construction of the properties was still in the preliminary stage in FY2010,” he reasons.
The developer is confident of achieving stronger financial results in FY2011, given the good take-up rate for several of its developments in Kuala Lumpur, such as the Camellia Service Apartments and The Horizon Phase II, both in Bangsar South; Kepong Business Park; residential developments Setapak Green and Villa Pines; and some intended launches in 2HFY2011.
Khor says the company’s medium to long-term plan remains unchanged — focusing on projects in the Klang Valley while nurturing the value of its over RM8 billion flagship development Bangsar South.
According to a source, UOA is expected to have an estimated market capitalisation of more than RM3 billion upon listing with a free float of 35% to 40% and an expected dividend policy of 30% to 50% of profit after tax.
The jewel in UOA’s crown is undoubtedly Bangsar South in Kampung Kerinchi, Kuala Lumpur. When the project, which has an estimated GDV of RM8.6 billion, was first announced, it was met with scepticism.
“People would tell me, but it’s Kampung Kerinchi!” recalls Khor. But he understood the reaction because when UOA acquired the 60-acre site back in 2005, it was inhabited by squatters.
“The land was on the market for a number of years but no one was keen to take it. Fortunately for us, the government had already resolved the issue of relocation with the squatters. What we had to do was assist them in their relocation,” says Khor.
The authorities, however, had a few conditions, one of which was to complete an abandoned low-cost flat project nearby. With the aid of UOA’s construction arm, the project was delivered within three months.
Plenty of work awaited the developer, from combating negativity among the Kerinchi residents to changing public perception of the area.
Five years have come and gone since then and Khor feels that it has crossed that initial difficult stage and is achieving what it set out to do — transform the area.
“Two years ago, not many people knew where Bangsar South was and were surprised to see the place. But I think awareness has grown significantly since then,” he says.
UOA has completed about 20% of the development, which includes Phase 1 of The Horizon comprising 14 blocks of 10 to 11-storey office buildings; Phase 1 of Park Residences comprising two condominium blocks; and The Village comprising the property gallery, F&B outlets and speciality shops.
Of the 60 acres, half is designated for commercial developments and the other for residential.
In the works are the six-acre Central Park, Phase 2 of The Horizon comprising eight blocks of 13 to 20-storey office buildings, a club house, a wellness centre and serviced apartments called Camellia.
Camellia is geared towards young professionals with its offering of mostly 600 sq ft units, priced from RM493,800 onwards.
“We always give priority to our existing customers by opening the sales to them first and the response has been very encouraging,” says Khor, declining to reveal the take-up rate.
The developer plans to retain 10 of the upper premium floors to be operated as serviced apartments and is in the process of finalising an agreement with an international hospitality group.
Camellia has separate facilities — located on the rooftop — for the serviced apartments on the top floors while a facilities floor will be allocated for individual owners.
“We have not set an official launch date yet but the previews for invited guests are ongoing,” says Khor, adding that there are no plans for a leaseback option for the individual units.
Next to the serviced apartments is a 5-storey healthcare centre with a total built-up of 84,000 sq ft. Of the five floors, two have been sold to Life Care International Medical Group which specialises in diagnostic and imaging facilities. The top three floors are intended to be used as a consultation facility.
“The healthcare centre is not a hospital; there will not be any operation theatre or emergency ward. There will be various disciplines of specialist offices. If treatment is required at the end of the consultation, patients will be referred to nearby hospitals such as Pantai Hospital in Bangsar,” says Khor.
“Those undergoing treatment in nearby hospitals will be able to stay in Camellia.”
Talks are underway with several reputable operators to take the other three floors. The centre is expected to be completed by December this year.
“Quite a number of operators have expressed interest. The main draw is the location and close proximity to high-end markets like Bangsar and Damansara Heights,” says Khor.
On the other side of Camellia is the RM100 million club house, which is divided into five floors — the diners club with all the F&B outlets, business club with the function rooms, cigar and piano lounge, wellness club with a spa and gym, and on top the Splash club, a two-acre water theme park. There will also be sporting facilities such as tennis and badminton courts.
UOA is looking into various options for the theme park such as going into a joint venture with a reputable operator or appointing an operator to run the theme park. The main criterion, says Khor, is commitment from the operator.
“We don’t want them to come in to put in the equipment and then outsource the work to various contractors. They need to have their own team because the water quality and safety are very important. As the theme park will be the main attraction, we need to make sure it is run successfully. We are even considering doing this rent-free,” he comments.
UOA is also in the process of setting up a hospitality division that will be very much involved in the running of the entire club. Work has started on the foundations and is expected to be completed by the middle of 2012.
Meanwhile, four blocks of Phase 2 of The Horizon have just obtained their certificate of fitness while the other four blocks facing the Federal Highway are expected to obtain theirs in July.
One block has been sold to a foreign company while another has been fully leased out. All buildings in Phase 2 will be Green Building Index accredited.
Lastly, the developer is in the midst of developing a six-acre park.“We realised that upon being fully developed, this place could be a concrete jungle, so the park will create a sustainable environment and provide a place for the people to relax,” says Khor.
Security will not be an issue, he adds, because aside from a police station within the commercial development, the park will be equipped with CCTV, panic buttons as well as round-the-clock patrols by the guards.
The values of properties in Bangsar South have been on the rise since 2008. Park Residences has seen a capital appreciation of about 70% in three years.
“When we first started selling, prices were around RM315 psf but now they are at about RM550 psf on the secondary market” says Khor, adding that rental yield is about 6%.
The Horizon’s buildings in Phase 1 were sold en bloc for RM600 psf in 2008 and Phase 2 is now priced at about RM1,000 psf.
“As Bangsar South is an MSC cybercentre, most of our MSC tenants are foreign companies,” says Khor.
UOA sold nine of the 14 blocks in Phase 1 and retained five blocks as assets. Of the five blocks, four are fully leased at RM4.50 to RM5.50 psf, giving a yield of about 6%.
“Even the low-cost flats are benefiting from the developments in this area. In 2007, rents were about RM150 per month but they have since increased to RM700 per month. So, the income of the residents has been indirectly enhanced,”says Khor.
The Bangsar South land was acquired for about RM51 psf in 2005 but prices have climbed to about RM300 psf now.
Khor believes UOA has managed to do to Kerinchi what YTL has done to Sentul. He says many who have been to Kampung Kerinchi recently have expressed surprise at its transformation.
“The main advantage here is the location. Bangsar South is located between the city centre and Petaling Jaya and there are two LRT stations within close proximity,” says Khor.
Among the proposed future developments are a hotel, another block of serviced apartments, a shopping mall, a medical specialist centre and an iconic office tower. Bangsar South is expected to take another 7 to 10 years to be fully completed.
“We are a developer that does not collect landbank. It is always our policy to ensure a fast turnover. If you look at our track record, all our projects started work within a few months of the acquisition of the land,” says Khor.
To fast-track construction, UOA has its own in-house technical, engineering, architectural and ID teams as well as a construction arm.
“This definitely helps speed things up and makes things easier as these teams know what we want and what is our focus. All our projects are completed ahead of schedule. That is our operation model and our strength,” says Khor.
The developer also endeavours to maximise its profit margins by timing its sales.
“The moment we pass the breakeven point in a development, we hold on to the units because we know the market value will increase. For some developments, we can hold the units until they are completed. So, even if I only sell four to five units a month, I can still maximise the profit margin. But, of course, you must have confidence in the market in order to do this,” says Khor.
However, the developer is not all about making profits, he adds.
“We have put a lot of effort into our corporate social responsibility (CSR) programme and have a dedicated CSR team.”
Much work was put into Kampung Kerinchi, including setting up a resource centre in one of the low-cost flats, helping build a hawker centre and refurbishing the low-cost flats and Universiti LRT station.
With the developer maintaining a positive outlook on the Malaysian property market and the impending listing on Bursa, Khor believes the long-term value of UOA’s properties will be sustained and the profile of the company will continue to rise.
This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 857, May 9-15, 2011
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