Is UEM paying too much for Kulai land?

by **Cals** Sun 23 Feb 2014, 05:42

Published: Saturday February 22, 2014 MYT 12:00:00 AM
Updated: Saturday February 22, 2014 MYT 11:32:02 AM
Is UEM paying too much for Kulai land?
BY THEAN LEE CHENG

PROPERTY sources say Kuala Lumpur Kepong Bhd (KLK) appears to be the winner in the KLK-UEM Sunrise Bhd land deals formalised earlier this month.
On Feb 7, both companies told Bursa Malaysia they will be pooling resources to develop two land parcels in Johor’s Iskandar Malaysia.
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The deal involves KLK selling 2,500 acres at Fraser Metropolis, Kulai to UEM at RM8 per sq ft. The land is part of an oil palm estate and is zoned for agriculture. The plan is to build mixed residential, commercial and industrial developments. This means additional cost of land conversion.
At the same time, UEM is selling about 500 acres of its Gerbang Nusajaya land to KLK for RM40 per sq ft.
The plan is to set up two joint-venture (JV) companies to develop the two pieces of land. The first JV is Scope Energy Sdn Bhd in a 60:40 ratio with KLK having the majority. Scope will build a mix of residential and commercial projects in the 500 acres Gerbang Nusajaya land over eight years.
The second JV company Aura Muhibah Sdn Bhd will see UEM taking a 60% stake, and KLK 40%. This Kulai land will be developed over 15 years. Sources say the land size of both parcels is a consideration.
“When it comes to land valuation, there is the time value of money. The revenue from this larger piece of land will take longer to come in. UEM will need a longer time to see its returns. Its holding cost is higher, both in terms of having to wait longer to see returns and to convert the land because it has a major stake in the JV.
“The question is: Does UEM, one of the largest land owners in Johor, need to buy the Kulai land?” a source asks.
Two sources say at RM8 per sq ft, the price is “high”. The “fair price” would have been “RM4-RM5 per sq ft due to its size and location”.
On reports by analysts that both deals were positive for the two companies in the long term, sources say KLK has got the better part of the bargain.
They compare KLK’s 2,500 acres to Mah Sing’s pending purchase of 1,352 acres in Plentong at RM7 per sq ft, next to Masai area and concluded that UEM has overpaid.
“The two locations are different but comparable,” says one source.
UEM’s Gerbang Nusajaya land, at RM40 per sq ft, is “correctly priced” but it is overpaying KLK for its Kulai purchase. Also, its Gerbang Nusajaya area is far more vibrant than Kulai. It is “strategically located with easy access onto the Second Link Highway,” the source says.
“It is also set to benefit from the three proposed major development with the Gerbang Nusajaya area. These being the Eco Industrial Township (J/V with Ascendas Singapore), Asean Trade Centre (JV with ChinaMall Holding Pte Ltd) and Motor Sports City, a JV with a company known as Fast Track, which is controlled by a Singapore billionaire Peter Lim.”
But UEM has a smaller stake in JV company Scope Energy to develop Gerbang, although the land originally belongs to UEM. Therefore, in terms of land price and the two JV companies, KLK is the clear winner.
The development of the two pieces of land are not inter-conditional, KLK’s statement to Bursa says.
A UEM statement says they bought the Kulai land “to strengthen our position as a leading developer in Johor and (to) extend our development portfolio beyond Nusajaya. Besides, both transactions are on (a) JV basis, giving us the opportunity to leverage on both our strengths and further unlocking our land value. Property development, particularly township development, has a long-term business horizon, as such we need to replenish our land bank and to ensure sustainable earnings in the future,” the statement says.
The statement also says the Kulai land is close to major developments such as the North South Expressway, Senai airport and Johor Premium Outlets and is 22km to Nusajaya.
“Location-wise, it is prime,” the statement says. It also added that although it may take longer time to develop, it has the potential for a higher GDV.
“The other transactions mentioned are all within Iskandar Malaysia Flagship Zone E as well which took place earlier. Thus, they should not be used as comparison to our recent transaction,” the statement says.