Sime's property division seen as first to list

INDUSTRY analysts are upbeat on the listing prospects of the country's largest developer in terms of landbank, Sime Darby Property Bhd — a division under plantation giant, Sime Darby Bhd. The division has 19,000 acres of land, with another 18,800 acres identified for future development.

At a time when the property market is booming, industry analysts say they see "huge upside potential" for the property division, which has significant presence in well-known townships and projects in Malaysia, apart from other projects in Asia-Pacific — Singapore, Australia, Vietnam and China.

"The first possible spin-off would be the property segment, given the potential of the Battersea [Power Station] project in the UK," an analyst says, adding that a listing could happen before the completion of phase one of the Battersea project — which is anticipated to be sometime in 2016 or 2017.

The analyst adds that the listing would come at a right time, given the large sums of working capital required for the Battersea project.

Sime Darby has a 40% stake in the iconic project, which is being developed by a Malaysian consortium on a 39.5-acre site in London. The project will have a gross development value (GDV) of £8 billion (RM38.53 billion) on completion 15 years later.

The other consortium partners are S P Setia Bhd — with a 40% stake; and the Employees Provident Fund — with the remaining 20%.

"The market for properties is hot now," says another analyst, "given the recently-proposed demerger and listing of IOI Corp Bhd's property division."

President and group chief executive Datuk Mohd Bakke Salleh said the group is looking into the possibility of listing its flagship companies.

"At the right time and God willing, we will list our flagship companies one at a time," Bakke said at Sime Darby's results briefing recently.

Although a listing of Sime Darby's plantation unit may be on the cards, some say, "it may not happen so soon" especially with the volatility of crude palm oil (CPO) prices and restrictions on plantations in Indonesia, which could generate a lukewarm response from investors.

According to its 2012 annual report, Sime Darby has 12 ongoing township developments in Malaysia, including Denai Alam, Bukit Jelutong, Ara Damansara, Bandar Bukit Raja One, Nilai Impian, Saujana Impian, USJ Heights, Subang Jaya, Putra Heights and Melawati.

One of its new township developments is Elmina East, which spans 1,088 acres in the Klang Valley and has an expected GDV of RM3.718 billion. Another project is Bandar Universiti Pagoh, with an expected GDV of RM6.77 billion.

The GDV for a number of its existing projects totals RM47 billion.

One source says the conglomerate may be looking into a real estate investment trust (REIT) for its investment properties to further unlock value for its shareholders.

Leisure properties managed under Sime Darby Property include Kuala Lumpur Golf & Country Club (KLGCC) in Bukit Kiara, Impian Golf & Country Club in Cheras and Harvard Golf & Country Club in Kedah. It also owns office buildings in Petaling Jaya, Shah Alam and Kuala Lumpur.

In addition, Sime Darby has hospitality properties from hotels to bungalows all over the country.

According to its latest annual report, the net book value of its investment and hospitality properties in Malaysia, Singapore, Vietnam, Australia and the UK stood at RM1.3 billion.

With the bulk of its landbank located out of the city centres, Sime Darby invested in developer Eastern & Oriental Bhd (E&O) for exposure to the latter's projects in city centres such as Kuala Lumpur, Penang and Iskandar Malaysia.

In 2011, Sime Darby acquired a 30.56% stake in the Penang-based developer. However, the acquisition triggered an investigation into whether Sime Darby should be required to make a general offer for the remaining shares, as it was seen as acting in concert with E&O's three major shareholders who had sold their shares to the conglomerate.

After an investigation, Securities Commission Malaysia ruled in October last year that Sime Darby would not be required to make a general offer for the remaining shares and that it was not acting in concert with the sellers.

Sime Darby paid RM766 million or RM2.30 per share for its strategic stake in E&O — a 59% premium to the latter's share price at the time.

Sime Darby Property showed an improvement of 15% in its profit before interest and taxes (PBIT) to RM139.3 million in 3Q2013 ended March 31, from RM121.3 million in the previous corresponding quarter.

The group says the favourable results could be attributed to the higher sales contributions from various townships — including Bandar Bukit Raja and Denai Alam, during the period under review.

The first phase of the Battersea Power Station development project was also successfully launched in Kuala Lumpur, London, Singapore and Hong Kong and achieved record sales.

For FY2012 ended June 30, the property division recorded PBIT of RM467.2 million, making it the fourth largest contributor to the group's performance after the plantation, industrial and motor divisions.

The group's property division was created through the integration of the property arms of the former Golden Hope Plantations Bhd, Kumpulan Guthrie Bhd and Sime Darby.

This story first appeared in The Edge weekly edition of June 10-16, 2013.

Looking for properties to buy or rent? With >150,000 exclusive listings, including undervalued properties, from vetted Pro Agents, you can now easily find the right property on Malaysia's leading property portal EdgeProp! You can also get free past transacted data and use our proprietary Edge Reference Price tool, to make an informed purchase.