AMID a property glut, UEM Sunrise Bhd sees itself as undergoing “triage” in the hands of “head surgeon” CEO Sufian Abdullah from now until 2023, to address the group’s pain points so it can emerge in a better position as the economy recovers.

The measures include restructuring the group’s cost structure by employing the modern method of construction, including design for manufacturing and assembly (DFMA), as well as strengthening its core revenue stream, which is development income.

“Between now and 2023, we are living in what we call a triage period. This is where we put the company on the surgery table and suture the bleeding, so to speak, the things that have been costing us,” says Sufian, who was appointed to the top post at UEM Sunrise in February last year.

“We are relooking at our cost structure to get better cost efficiency, to get better margins in terms of our performance, and to refocus our intention on not just creating the products themselves, but creating value in the products.”

According to him, creating value in UEM Sunrise’s products is something that has been missing in the past, and the group now wants customers to be able to identify its products with certain values. These values could be in its design, the materials it uses, the concept of the development and the kind of amenities that it offers.

All these will be achieved through research and data-driven commercial decisions, says Sufian, who was CEO of KWEST Sdn Bhd, the real estate arm of Kumpulan Wang Persaraan (Diperbadankan), between April 2018 and January 2021. Prior to that, he was vice-president of KWAP’s property division from January 2014 to April 2018. He spent more than six years with Sime Darby Property Bhd between 2007 and 2014, and Sime UEP Properties Bhd before that.

Johor exposure a bane

UEM Sunrise was already struggling with an oversupply situation in the Johor property market, which made selling residential properties there — especially those priced outside the means of the local population — rather challenging. The pandemic and resulting Movement Control Order (MCO) sent the company further into the red.

The property developer has been in the red for the past seven quarters, since the quarter ended March 31, 2020. In its third quarter ended Sept 30, 2021 (3QFY2021), it recorded a net loss of RM50.4 million, which was almost double the net loss in the previous corresponding quarter.

The company’s share price performance over the last 12 months reflects the woes it has been facing, having risen as high as 49.5 sen on March 15 last year before slumping to a low of 30 sen on Dec 22. Last Thursday, the stock closed at 31 sen, valuing the group at RM1.57 billion.

However, despite the movement restrictions, UEM Sunrise managed to record RM1.46 billion in sales last year, exceeding its internal target of RM1.2 billion. Nevertheless, it only managed to launch 40% of its RM1.5 billion in planned launches. This year, the developer has set a sales target of RM1.5 billion.

To immediately address the group’s financial performance, it will prioritise projects for which capital outlays have been made, so that the money spent on certain projects do not stay idle for long. This means projects for which infrastructure costs have been spent will be a priority.

However, UEM Sunrise is still saddled with a legacy issue — its land bank and projects in Johor. The oversupply situation in the state has become the main bane of the company. With 9,000 acres of land, it is arguably the largest developer in the southern state.

This means even if UEM Sunrise wants to prioritise projects that already have capital outlays — most of which are in Johor and in township developments where infrastructure costs have been spent — the group will have to position the products carefully and have them targeted at the needs of the market.

“With infrastructure spending already spent, rolling out the corresponding projects will [help us] recover the infrastructure costs as fast as we can. Having said that, we are cautious about going for such a move as there is a risk of cannibalising our products,” says Sufian.

“So, [we have to] balance that out to mitigate the risk. We are looking at positioning these products at a certain price point, with specific features that we think our customers will be able to relate to.”

UEM Sunrise’s land bank is still very much concentrated in Johor in terms of acreage. For every acre it has in the central region or the Klang Valley, it has nine in the southern region.

This means its fortunes are very much tied to the development of the state, especially Iskandar Malaysia. Having said that, there are projects in the Klang Valley that the group is banking on to lift its performance.

This year, UEM Sunrise will continue marketing its KAIA Heights project in Equine Park in Seri Kembangan, Selangor, with the possibility of launching the second phase by the end of the first quarter of this year or early in the second quarter.

The RM655 million project, located on 19.24 acres of land, comprises four residential towers. The first two towers, which were launched in March last year, have seen a take-up of 50% so far. The developer’s sales were given a boost when its sales gallery opened in October.

Phase 1 has 517 units, with built-ups of 972 to 1,437 sq ft. Selling prices range from RM567,800 to RM873,800. The target buyers are young families as well as multigenerational ones.

UEM Sunrise will be launching Serassa Green, with a gross development value (GDV) of RM127 million, in the second quarter of this year. The project is a mid-range landed development in Iskandar Putri, Johor.

The group will also be launching a 900-unit project in Gerbang Nusajaya, Iskandar Putri, according to Sufian.

Meanwhile, in the central region, UEM Sunrise will launch its first transit-oriented development in Taman Connaught, Cheras, in the third quarter of this year. The project will be integrated with the Taman Connaught MRT station.

The group will continue to work on its Kiara Bay project in Kepong. All in all, it will launch RM3.3 billion worth of properties this year, with a sales target of RM1.5 billion, which is the same level as last year’s realised sales.

Over the medium term, once it has overcome its challenges and is back in the black, UEM Sunrise will start creating elements that will stabilise and sustain its performance, says Sufian.

This includes a strategy to ensure that the group’s commercial properties are giving it the kind of yields and returns that it needs. Part of the commercial strategy is to ensure that it has an exit strategy, if one is needed in the future for its commercial real estate.

This thinking could be due to the fact that its largest commercial real estate development, Publika Shopping Gallery, has suffered from low yields for the past two years, partly due to the Covid-19 pandemic.

According to Sufian, there is a possibility of spinning off UEM Sunrise’s commercial real estate into a real estate investment trust (REIT), to be owned by the group or others. However, there are no immediate plans for this.

The company is also developing mixed-use projects with commercial elements, including on the former Dutch Lady land in Petaling Jaya’s Section 13, which it acquired for RM200 million in March last year.

UEM Sunrise’s Solaris Parq in Dutamas and Kiara Bay in Kepong will have commercial elements as well, with the group looking to monetise these assets from the get-go, rather than holding on to them for several years only to be stuck with these assets.

“We have a number of commercial projects that are going to come on stream, especially at the Dutch Lady land, as well as in Solaris Parq and Kiara Bay. So, there are sizeable commercial developments in the pipeline coming on stream from 2023 onwards,” says Sufian.

“What we don’t want to do is get into these sectors without knowing how to get out at the end of the day. Our focus will be on how to effectively monetise these assets and create value out of them.”

The group has identified possible partners to take on the commercial developments, he adds.

In the industrial properties sector, UEM Sunrise won’t be launching any projects this year. However, existing industrial parks and developments will be expanded by getting new investors or tenants to buy or rent properties there.

The stabilisation of the group’s financial situation will take about two to three years, according to Sufian. After that, it is hoped that UEM Sunrise will emerge reinvigorated and re-energised, and be more resilient in taking on more opportunities and greater diversification.

Source: The Edge