City&Country: PKNS moves into second stage of business plan

Perbadanan Kemajuan Negeri Selangor (PKNS), also known as the Selangor Development Corporation, has been busy over the last two years planning several redevelopment projects in prime locations in the state.

Some of these projects have impressive names like PJ Sentral Garden City, PJ Elevated City, Datum Jelatek and Kelana Jaya Sports City. These redevelopment and urban regeneration projects are part of the second stage of the state agency’s business plan under which it developed most of its landbank on its own or via joint ventures, says general manager Othman Omar.

In the first stage of the business plan, PKNS developed vast tracts of land into what are now known as Shah Alam, Bangi and Kota Damansara, areas which are now almost fully developed.

Established in 1964, the state development body’s objective was to establish equal distribution and socio-economic growth in Selangor through the development of real estate, property, trade, industry and investment. It has, thus far, developed 11 townships.

Othman says PKNS had kept a low profile in the past and was often associated with low-cost and affordable housing developments. However, since he took the helm of the agency in February 2009, one of his main goals has been to change how the public perceives it.

“We have developed many big township projects like Shah Alam and Kota Damansara but we don’t usually publicise what we have done. We conducted internal and external branding audits early last year to find out what the people thought about us and we found that we were perceived as developers of low-cost developments of bad quality. We immediately embarked on a rebranding exercise to let people know us [better],” he says.

PKNS is involved in more than 60 projects across Selangor at any one time, on top of the 30 projects under its subsidiaries. It also engages in local and international strategic collaborations with the private sector. All these endeavours fully stretch the limits of its 900 employees, financials and resources.

“We have actually implemented 30 projects through our subsidiaries in Malaysia and Australia. We find that sometimes we don’t need to compete with the [other] developers but complement them,” Othman observes.

Besides the redevelopment of its older properties, PKNS is also looking at jointly developing the land of other state agencies like that belonging to Majlis Sukan Negara, Petaling Jaya City Council (MBPJ) and Majlis Agama Islam Selangor.

The 20-acre PJ Elevated City is one of the developments with a state agency. MBPJ owns half of the land there.

“We go to other state agencies and offer to develop their land. We have experience in property development which they don’t. Most of them like collaborating with us because we are not profit-driven and don’t take maximum profit. We believe in a win-win situation, which is why so many government agencies prefer working with us,” says Othman.

PKNS has so far identified at least 10 new sites for urban regeneration and at least five new strategically located tracts belonging to the private sector and state government agencies for privatisation and joint-venture developments.

Landbank
PKNS owns land in over 11 townships in nine Selangor districts exceeding 10,000 acres and valued at RM4 billion. It is looking to increase its landbank by another 1,500 acres through acquisitions this year in Sepang, where its Selangor Science Park 2 (SSP2) is located.

PKNS is looking at a new business model and revising the master plan for SSP2 as well as Bernam Jaya in north Selangor. It has invited Keipr Inc’s Dr Armen Papazian — a Nobel Prize finalist and former professor of Cambridge University, the UK — to look for a suitable business model in Bernam Jaya.

A golf course and private aviation park are planned within the township, which is looking to promote the Malaysia My Second Home programme.

Papazian was formerly the head of Islamic finance at UBS Investment Bank.

“We have spent RM1.15 billion to date on SSP2 in terms of land acquisitions, earthworks and infrastructure over the last 15 years, so it is time to realise some of its value,” says Othman.
PKNS has also been focusing on improving its delivery system and corporate governance in some of the weak areas it has identified.

Last year alone, PKNS achieved cost savings of RM115 million from more “value-for-money” and competitive tenders, e-procurement and value engineering.

Othman says it is aiming to increase this to RM150 million this year.

Credit rating company RAM Rating Ser­vices Bhd recently upgraded PKNS from A1 to AA, which translates into lower financing costs for its developments in the future.

In January, PKNS signed a memorandum of understanding with Transparency International Malaysia to establish an Integrity Administration Committee to re-evaluate and propose further improvements to its current administration. The “integrity pact” will bring the state agency’s management to a higher level of transparency in fighting graft and handling misconduct.

As at December last year, PKNS had built more than 150,220 residential units, 2,230 shops and 456 factories in Selangor with a total value of RM11.39 billion. These figures exclude projects by its subsidiaries and privatisation and joint ventures.

For the next 5 to 10 years, PKNS is targeting to develop 20,000 affordable homes — based on a new concept with enhanced facilities — to be priced from RM65,000 to RM99,000. The first project with this new concept is in Bangi and is scheduled for launch this May.

PKNS’ audited accounts for the year ended Dec 31, 2010, saw a pre-tax profit of RM196.8 million, an increase of 18.5% or RM30.7 million from RM166.1 million the previous year. Othman says the company is looking forward to better financial performance next year, hoping to at least double its profits.

The 2010 figures show purely operational profits, minus the RM150 million generated by the diversification from Kesas. Also excluded is PKNS’ real estate investment trust (REIT) exercise, which was worth an estimated RM162 million cash with a profit of RM82 million.

Last September, PKNS ventured into the REIT industry with the injection of three properties — Menara PKNS, Kompleks PKNS and SACC Mall with a combined value of RM270 million — into AmanahRaya REIT (ARREIT) in exchange for new shares and cash. This exercise made PKNS the second largest shareholder of ARREIT with a 30% stake.

The state agency is looking forward to injecting more of its existing properties into the REIT and other properties in the pipeline, such as its strategically located redevelopment and urban regeneration projects in the Klang valley.

PJ Sentral Garden City
Located on the site of the former PKNS headquarters in Petaling Jaya, PJ Sentral Garden City is a 10-acre integrated urban regeneration project designed to further enhance commercial and economic activities in the area.

It will consist of high-end serviced apartments, hotels and commercial towers with an estimated gross development value (GDV) of RM2.2 billion. Adopting the 3R concept of redevelopment, reactivation and restoration, it has a green lung representing 40% of the original land area.

PKNS is looking to build a bridge to connect the development to the nearby Taman Jaya LRT station and upgrade its infrastructure and accessibility.

“This is what we call urban redevelopment and we are looking at it as a very green initiative. We are developing and transforming a dilapidated area into a green and vibrant community. It is next to an LRT station and the location is strategic. I believe our development will spur activity as there have been complaints from business owners that there is not enough business in the PJ State area,” says PKNS’ general manager Othman Omar.

The state agency is also in talks with four parties on a long-term lease, selling the towers en bloc or  constructing them according to the parties’ specifications.

PJ Elevated City
PJ Elevated City is coming up on an empty tract located next to Lebuhraya Damansara-Puchong (LDP) and the Federal Highway. PKNS is looking to develop hostels that can accommodate 10,000 workers and build 5,000 parking bays in the first phase, which is part of the Western Digital factory expansion programme. It will incorporate elements of eco-sustainable architecture into the project to achieve maximum Green Building Index ratings.

The project is on a 20-acre site overlooking the Subang Golf Club and is jointly owned by PKNS and MBPJ. It is expected to generate a GDV of at least RM1.6 billion and PKNS is talking to a few parties on en-bloc purchases.

“Western Digital is looking to expand its business in Malaysia and this project will provide accommodation for its employees. The entire project will have 5.3 million sq ft of space, comprising corporate offices, SoHo suites, commercial and retail space with al fresco restaurants as well as condominiums,” says PKNS’ general manager Othman Omar.

Meanwhile, the Kelana Jaya Sports Centre will be jointly redeveloped by Melati Ehsan Holdings Bhd and PKNS Holdings Sdn Bhd into a RM1.8 billion sports-themed mixed development with commercial and residential components, an art centre and an integrated sporting hub.

A January filing with Bursa Malaysia shows that the proposed development entails the construction, completion and sale of two blocks of serviced apartments, a block of SoHo, a sports complex, two office towers, a shopping mall, a hotel, a performing arts centre and car parks.
“It is just next to the LDP and the location is strategic. Given the residents’ concerns over traffic, we won’t have access from the back,” Othman says.

In the Ukay-Ampang area, approval is pending from the Ampang Jaya Municipal Council for the six-acre Datum Jelatek project.  The developer hopes to “redevelop the low-cost slum [located beside the Embassy Row with an LRT station just four stops away from KLCC] into a vibrant area”.
“It will be a mixed retail, commercial and residential development comprising four residential towers to be linked to the LRT station nearby. The property values here don’t go up due to the low-cost developments and we hope the redevelopment will transform the area and push up property values,” Othman says.

At a stone’s throw from the Datum Jelatak project is a block of flats in Taman Keramat known as the “Colombia” . The state agency is negotiating with the residents’ association for the residents to vacate these flats.

Selangor Science Park 2
For SSP2, PKNS is undertaking a joint venture with Andaman Group to build a campus and hostel for SEGi University College, which will be the latter’s seventh campus in the country.

PKNS has also signed a sale and purchase agreement with the developer of the International Medina University to set up a campus for its 20,000 students. In addition, the state agency is in negotiations with another university to build its campus here.

PKNS is also in discussions with UEPE Bhd to jointly develop three parcels into a lakeside commercial centre in SSP2.

The proposed International Aerospace and Science Discovery Centre to be developed by Advance Science Education Asia on a 12ha site is being finalised. The centre’s first phase will be developed at a cost of RM300 million. PKNS is also in talks with some local and international parties to jointly develop renewable energy technology in the township.

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 855, Apr 25-May 1, 2011