The Star Online: Business
The Star Online: Business |
- EPF's purchase of Quill mall raises questions
- Bumi Armada inks RM568mil agreement
- QE fuelling IPO appetite in Malaysia
| EPF's purchase of Quill mall raises questions Posted: THE conditional purchase by the Employees Provident Fund (EPF) to buy Quill City Mall from the Quill group has generated a number of questions. The RM1.2bil deal goes beyond these two parties and must be viewed from several perspectives, from the real estate point of view, EPF contributors and the guardians of the fund, and Quill. For Quill group, it comes across as a corporate exercise. The deal has generated some questions. Is Quill cashing out? Is this an opportunity for EPF to add another gem to its real estate portfolio? Put another way, is Quill wise to let go of a gem, not to mention a great location? Will Malaysians be better off for it, being EPF contributors? Private sector workers and the public sector pension employees of about 13.69 million contribute to the EPF as of March 31, 2013. How these monies are invested concern them. Thus far, EPF, the sixth largest pension fund in the world, with RM536.55bil in investments assets, has managed its funds well. As of March 31 this year, about RM15.05bil (or 2.8%) of this are in real estate, of which about RM7bil (or £1.5bil) is invested in London assets. The bulk of its investments are in equities, Malaysian securities and other assets. StarBizWeek spoke to five property consultants and a practitioner, beside that initial interview with Quill group executive director Datuk Michael Ong. By any measure, Quill City Mall is indeed a good asset. No two ways about that. On that point, all of them are in agreement. It is located in the heart of the city and the mall is part of a larger integrated development of slightly over seven acres. The other components is an office block which will be built at a more opportune time as there is a huge supply of Grade A office space in the Klang Valley today. A block of serviced apartments will be built together with the mall, with pricing beginning from about RM1mil. The mall will occupy 4 acres, of 60% of the footprint. Quill's competition Sogo departmental store, located in Jalan Tunku Abdul Rahman is fully occupied, consultants say. EPF owns that, but it is not a mall. EPF also owns Giant chain of hypermarkets and are co-owners in Paradigm Mall in Kelana Jaya. "Sogo reflects the rise of the Malay consumer. Throughout the country, there is a certain degree of the rise of the Malay consumer. That is a factor in retail that cannot be overlooked," says a consultant who declined to be named. Sogo lies at one end, and Pavilion and the Suria KLCC at the other end. The closest mall to Quill City Mall, or Vision City Mall, is Maju Junction, whose owner is Tan Sri Abu Sahid Mohamed, who owns the MEX Highway. Although Maju Junction is less than 500 metres away from Sogo, somehow, Maju Junction is "struggling to get tenants." Pavilion is doing incredibly well. Suria KLCC has the masses, because of the MRT station and is a tourist attraction. The site of the Quill City Mall has been abandoned for many years. If not for the fire and brimstone this past week, that site with the dark green hoarding could well remained "abandoned and unknown". That seven acres is very significant. First, it is not easy to come up with that land size in the city and the Quill group is fortunate to have landed it. Secondly, the shape of that piece of land allows the mall to have, at 300m, the longest street frontage on Jalan Sultan Ismail, one of the main streets of the city. Its access to the public rail transport will only improve. CB Richard Ellis (Malaysia) group executive director Paul Khong and Henry Butcher Retail managing director Tan Hai Hsin say the site is the main gateway to Kampung Baru, an area of more than 200 acres, and may well be the city's greatest and most forefront redevelopment project. "Quill will obviously bring positive vibes to the whole area. It will rejuvenate commercial activities there. Retail should do well given the dense population and numerous offices there," says Khong. The success of Quill City Mall will spearhead redevelopments from within Kampung Baru, Jalan Dang Wangi and Jalan Tunku Abdul Rahman, Khong and Tan say. But the success of a mall is not just location, although that is an important factor. "The mantra Location! Location! Location! should be Management! Location! Management!," says a consultant who declined to be quoted. "It is the astute management that makes a mall among other things and Quill has no experience in managing or operating one," he says. The Quill group started out as an architecture and interior designing team which subsequently went into building and managing offices. It has a TESCO building in Penang and a bit of retail space in Plaza Mont'Kiara. This will be its first mall. EPF has stressed that it has not paid anything for the mall, although the deal has been formalised with the signing of the sell and purchase agreement, subject to certain conditions. The purchase is "still conditional upon physical completion of the mall according to the specifications agreed within three years ...and a minimum 70% occupancy at an agreed sustainable minimum commercial yield over the long-term," an earlier statement from EPF says. Also, the final value of the investment will only be determined in the period after the mall begins operations, and is subject to the investment reaching pre-agreed revenue and profit targets over a period of several years. Instilling confidence Says a practitioner: "Quill must instill confidence among tenants. Giving up the mall may be sending wrong signals." An average-sized food and beverage outlet operating in a mall will need to invest about RM500,000 to fit out 1,000 sq ft, the bulk going towards the kitchen. "Landlords today are paying for the fit-out. British retailer H&M costs the landlord RM2mil in fit-out. That's how competitive it is today and more malls are coming up," the practitioner says. On the positive side, the entrance of EPF can be viewed as a good thing; tenants cannot have a better long-term landlord than EPF who would want to ensure that the place is well-managed. "But EPF will need a layer of expertise to run and to understand the nature of the asset," says a source. Although Quill has managed its offices well, a mall is a different animal. "If Quill is confident that the mall will do well, they should keep the asset and go through the first round of tenancy, which is three plus three years, in order to unlock the value of the asset. They can then inject the mall into a real estate investment trust (Reit). After all, Quill is a Reit fund," a source suggests. Kuala Lumpur's average grade A office rental ranges between RM7.50 and RM8 per sq ft, so malls, as a sub-segment of the property market, is currently offering the highest rental on a per sq ft basis. Quill needs to show tenants that it is committed, although EPF, as a landlord, has its positives. On a bigger picture, Quill City Mall will have a lot of competition as there are already many malls in the city. The Sunway group is building Velocity mall in Jalan Cheras/Jalan Cochrane area, Kuala Lumpur. It is currently refurbishing Putra Sunway (formerlay The Mall), opposite Putra World Trade Centre. It has Giza in Kota Damansara, Carnival in Butterworth, Penang, and Pyramid in Petaling Jaya. Says the practitioner: "Tenants with the Sunway group may continue to work with them in Velocity and Putra Sunway, who will also be looking for tenants." Quill Mall will be in direct competition with landmark malls in the city - some of Malaysia's best - like KLCC Suria, KL Pavilion with the new Harrods next door, Sungai Wang Plaza and the other neighbouring malls all along Jalan Bukit Bintang and more. Says CBRE's Paul Khong: "Quill must get the retail concept right, niche and identify its target market carefully. The tenant mix here must be accurately determined." Setia City Mall in Shah Alam (under the S P Setia group) engaged Lend Lease, a leading and international property and infrastructure group, to handle the marketing and leasing. "That Quill site comes with a legacy. When you want to revive the site, the first thing that is needed is investment in the make-up, the facade. And the awareness programme must be extended and prolong because you need to attract tenants," says a source. "It must spruce up the facade to let the public and potential tenants know that something exciting is around the corner." Where ever its location, its legacy or owner, a mall has to begin right. Publika in the Segambut area struggled several years, and Pavilion had a difficult two years in the beginning. Factors like the physical building and design, layout, how the mall is positioned, tenant mix, direction of the mall and legacy issues are only some issues any owners and operators will have to consider. |
| Bumi Armada inks RM568mil agreement Posted: PETALING JAYA: Bumi Armada Bhd has entered into a RM567.7mil supplementary agreement to its existing contract with OOO LUKOIL-Nizhnevolzhskneft for works in Russia. The company said in a statement that the agreement entered via unit Bumi Armada Caspian LLC was for the engineering, procurement, installation and pre-commissioning (EPIC) work in the Filanovsky and Korchagin field in the Russian sector of the Caspian Sea. It said the contract would increase the group's transport and installation order backlog to over RM2bil (US$629.4mil). "Lukoil is a repeat customer, who is a major player in the Caspian region and the fourth-largest privately owned oil and gas company in the world by proven oil reserves. We are buoyed by this supplementary agreement, which underscores their confidence in our ability to deliver, and the good working relationship we have developed. "This further consolidates our position as an EPIC provider in this region," said chief executive officer and executive director Hassan Basma. The company said the works would be carried out using Bumi Armada's derrick pipelay barge, the Armada Installer, and that the project would see the majority of the construction work being carried out and completed in 2015. |
| QE fuelling IPO appetite in Malaysia Posted: SOMETHING is up in the Malaysian capital market. While global markets have been bearish in the last six weeks, the Malaysian market appears to be shockingly indifferent towards the woes of the world. Who cares if the bond party in the US is crashing or that Europe continues to be plagued with debt concerns. The liquidity festival monikered "Quantitative Easing" championed by Fed chairman Ben Bernanke some five years ago, have been fuelling initial public offering (IPO) appetite in Malaysia. What's obvious now is that there is a tonne of latent liquidity looking for homes in Malaysian IPOs. This was made extremely obvious in the case of upcoming listing Sona Petroleum Bhd, which is likely to be the third special purpose acquisition company (SPAC) to make its debut on Bursa Malaysia this month. Sources have revealed that Sona's shares were more than five times oversubscribed. Now that is a lot of money, considering Sona was looking to raise RM550mil. There were some RM3bil of liquidity looking to park their money with Sona. That's pretty extraordinary considering that this RM3bil is coming from high net worth individuals. You see, institutional funds and most investment houses do not have the mandate to invest in SPACs. So who are all these people putting their money in these IPOs and why the great interest in Sona? "Its all liquidity, Its got less to do with economics and fundamentals. Its really a case of too much money and cash driving equity markets," quips one head of dealing. Areca Capital Sdn Bhd chief executive officer Danny Wong says that traditionally, there has always been big interest in IPOs. "IPOs which have successfully created a story, for example Johor's Iskandar Waterfront Holdings Bhd, will attract interest," he says.  Wong says that Sona and Ranhill are in oil and gas, a favoured sector Another fund manager says appetite for Sona was mainly driven by speculative interest. "Look at how well the previous SPACs did. Hibiscus Petroleum Bhd and Cliq Energy Bhd have delivered returns of of 300% and 140%. People have seen that and are looking for that kind of success to be repeated. So they are all piling money into Sona," says the fund manager. He adds that these high net- worth individuals putting their money in these IPOs weren't in the tycoon leagues. "They put in RM5mil to RM10mil. There are well to do people around looking to exercise their money. These people have made their money from properties, so now they are looking to roll those profits in the IPOs. Furthermore, many banks provide financing for IPOs, and this is a huge factor in the big take up rates for IPOs," says the fund manager. HwangDBS head of Equity Capital Market Sherilyn Foong says that the Malaysian equities market is still very predominantly local, with both local institutional funds dominating and retail investors consisting mainly local retailers. "This is unlike markets like Hong Kong which see much greater global participation in both institutional and retail segments. Liquidity sloshing about is always good for equity markets, in my humble opinion. Recent local factors dampening traditional favourite asset classes like property and gold have contributed to this sloshing liquidity effect on our local stock market. You can clearly see a renewed risk appetite and vigour for equities," she says. Another upcoming IPO is long haul discount airline AirAsia X, which is raising RM988mil, making it the largest float of this year for now. Its public retail offering of 150 million shares was oversubscribed by 3.83 times. This deal is also anchored by domestic long-only funds. At an IPO price of RM1.25, this gives it a forecast 2014 PE of around 7.5 times. The offer comprises of 790 million shares at the base size, of which 75% were primary. There is a greenshoe of 119 million shares available, which could bring the total deal size to RM1.14bil. "There is definitely is a lot of equity appetite. Many of these high net worth investors are looking to maximise their gains and what better way than in big IPOs. Big IPOs provide huge liquidity and allows investors to take meaningful positions without having difficulty to eventually exit," says Wong. Foong adds that there is a certain novelty factor to new issues. "Ideally, investment bankers should price their primary issues with some upside for investors to take from the table," she says. Wong adds that Sona and Ranhill were in the oil and gas sector, which was a favoured sector in Malaysia. "Oil and gas is a key contributor to Malaysia's gross domestic product and is also a key component in Bursa's index. So IPOs related to these sectors will surely attract interest," says Wong. Foong says that the sexier sectors like oil and gas, utilities and lately property would attract investor interest. On the other hand, information technology companies would continue its bearishness sentiment among investors. Wong foresees upcoming IPOs such as Iskandar Waterfront Holdings and Westports to garner similar amounts of interest due to their size and sector. IWH is the master developer of Iskandar Malaysia, a big city with 1,600 ha of prime waterfront land in the southern tip of Johor. IWH is developing its land into a waterfront city fronting Singapore in a development that is likely to take between 30 and 50 years to be fully completed. |
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