UEM Sunrise Bhd, the largest private landowner in Iskandar Malaysia, Johor, is looking to dispose of some of its 11,280 acres in the development corridor in order to grow its geographical footprint.
In an exclusive interview with The Edge, group managing director and CEO Anwar Syahrin Abdul Ajib says the group wants to monetise its land in the southern state quickly.
“I don’t want to be borrowing money all the time to buy land, so I have to monetise some of our land in Johor. Then, I won’t have to gear up so much. When you acquire land, your money can be tied up in it for a long time before you can start selling. We don’t want to be in that position.
“No doubt, I will have to raise some debt first but I want to utilise our Iskandar land to pay it up front instead of just leaving it there. We are looking to sell if the price is right,” he explains.
This plan by UEM Sunrise (fundamental: 1.50; valuation: 2.60) comes amid claims that the group is behind in its payments to its contractors. However, the developer denies facing a cash flow problem and cites its healthy current and quick ratios of 3.85 times and 2.55 times as at March 31, 2015. The group also has unbilled sales of RM3.2 billion that is receivable within the next two years, followed by another RM1.6 billion, says Anwar.
Nevertheless, its cash position has weakened from a year ago. As at March 31, 2015, its cash and cash equivalents had dropped 36.3% to RM694.7 million from a year ago.
The group paid its contractors RM375.9 million during the quarter ended March 31, 2015, which ate up nearly all its cash receipts from customers of RM403.9 million. Also, the cash receipts were 18.3% lower year on year.
A slowdown in the local property market since the middle of last year has caused UEM Sunrise to lose almost half its value over a year. Its shares have dropped 49.84% y-o-y and closed at RM1.02 last Wednesday, underperforming the Bursa Malaysia Property Index, which lost 14.2%.
Since taking the helm at UEM Sunrise nine months ago, Anwar has stressed the need to extend the group’s reach beyond Iskandar. At the moment, 77% of the 14,000 acres the group owns, including through joint ventures, is in Johor.
UEM Sunrise has only 66 acres in the Klang Valley now with 39 acres in Mont’Kiara. It also has 240 acres in Seremban through a JV with MCL Land Sdn Bhd and outside the country, about 4.9 acres in British Columbia, Canada, and 30 acres in Durban, South Africa.
“We are looking at sizeable land in the Klang Valley that will give us development revenue over a five-year period. So, we will have a pipeline of good projects that we can launch and build within that period,” remarks Anwar, who was group chief financial officer and group head of the ports and logistics division at MMC Corp Bhd before joining UEM Sunrise.
UEM Sunrise is ready to allocate up to RM1 billion a year for landbanking, he says, adding that the developer will spend more if the location of the land is good and the price is right.
Besides the Klang Valley and Penang, UEM Sunrise is also eyeing land in Australia, where it is already developing two projects in Melbourne, and the UK.
The property glut in Iskandar Malaysia has been a hot topic for some time now. A slew of government and central bank policy changes as well as the influx of China-based property developers have turned the tide against the corridor.
According to Malaysia Property Inc, an article in Property Quotient says transactions will be muted this year, given the cooling measures to reduce speculation. Besides, the Chinese developers have flooded the market with thousands of units in a short time.
As at end-2014, the total supply of properties in Iskandar Malaysia stood at 429,018 units, according to the Valuation and Property Services Department. Some 106,487 residential units were under construction while 141,960 units were under planning, translating into a 58% increase in the existing supply.
But UEM Sunrise is not overly concerned about the oversupply situation in Iskandar Malaysia because the group’s strategy is to develop catalytic projects and townships compared with the high-density, high-rises that the foreign developers are into, says Anwar.
“We reckon that the oversupply has got to do with the high-density kinds of development. We do more landed projects and even our high-rises are specific to Puteri Harbour. This is very much a part of our plan, unlike the sudden introduction of units.”
He adds that UEM Sunrise will continue to develop impactful projects, such as the FASTrack Iskandar automotive hub, Gerbang Nusajaya, SiLC and the international marina and convention centre in Puteri Harbour. Nevertheless, it had to scrap its China Mall project. When asked why, Anwar says it was a purely commercial decision and that the numbers were not good. “If you have a deal and suddenly find that it is not advantageous to you, you have to move on to the next one.”
Despite the weakening local property market, UEM Sunrise aims to sell RM2 billion worth of properties and launch RM3.7 billion worth of projects this year, both at home and abroad. The sales are going to be supported by its projects in Melbourne, which has a combined sales value of about RM800 million.
“We believe in the long-term prospects for Iskandar. We knew it was going to be a long-haul project. So, there will be good times and bad. It is just a matter of having the stamina to go through the bad times and not being overzealous during the good times,” sums up Anwar.
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This article first appeared in The Edge Malaysia Weekly, on June 22 - 28, 2015.
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