E&O upbeat on new UK properties

EASTERN & Oriental Holdings Bhd (E&O) will leverage on its UK properties, with a combined gross development value (GDV) of up to £400mil, to expand its presence there.

E&O now has a platform to expand after its purchase of two office buildings in London – the 11-storey Thames Towers and 15-storey Landmark House – for £57mil (RM308.94mil) in January. 

E&O deputy managing director Eric Chan Kok Leong says with the two buildings in addition to the two current properties of Princes House and Esca House in the UK, the base case of the combined GDV would be from £270mil to £400mil.

Currently, the GDV of Princes House is RM325mil (£60mil) and Esca House RM434mil (£80mil). Chan says the latest acquisitions of Thames Towers and Landmark House represent a sizeable project that will anchor E&O’s portfolio.

These projects will provide it a scale that is significant to attract a separate and dedicated London management team fully focused on building the E&O brand and properties abroad.

An artist’s rendering of the STP2 project, which is expected to stretch over 15 to 20 years comprising mixed development of residential and commercial components.

“The formation of this E&O Property UK team is imminent and would be the platform in which current and future projects in London would be managed and spearheaded, and could be potentially achieved through strategic partnerships and/or through a listed entity in the UK within the next 12 months,” he told StarBizWeek.

Chan says the assets in the United Kingdom would be the platform to attract the talent who will have a sizeable project to work on. It can then work with the strategic partners, via a joint venture (JV) that would be formed. 

There will be 30% equity and 70% bank financing for the platform. 

“E&O has insofar come up with £32mil, 30% of the equity value for all three assets. The first priority is to establish a team to manage the projects within the platform,” he added.

UK-listed entity 

A JV plan, according to RHB Research, is a good move as it would allow E&O to reduce its gearing while holding an associate stake in the JV, but retaining a “significant influence” on the board.

AmResearch, meanwhile says the platform will transfer E&O’s debts arising from London to a UK-listed entity or JV. According to the research firm, any future acquisitions in London could be done via this platform.

Commenting on analysts’ initial concerns that E&O’s gearing might rise, Chan says: “Our gearing is at 0.3 times. With the acquisitions, it would be 0.5 times, which is still conservative.”

Chan: ‘The UK team is imminent and will be the platform in which current and future projects in London will be managed .and spearheaded.’

He explains that with the rental income at 70% occupancy, it is sufficient to service the loan for the acquisition. The buildings can also be refurbished or redeveloped and maintained as office buildings due to the fairly strong demand. 

On yields, it can expect a 7% to 8% net yield, he adds. 

UK is one of E&O’s four growth engines, besides Greater Klang Valley, Penang and Iskandar Malaysia.

As for earnings outlook, Chan is confident the company can register sustainable after-tax profit for the next three year and after. Cumulative after-tax profit for the period of 2014 to 2016 should come in the region of RM450mil and if it does better, Chan expects it can stretch to RM500mil. 

E&O’s unbilled sales stood at RM831mil as at Sept 30, 2014, while cash and cash equivalent amounted RM224mil. 

Seri Tanjung Pinang 2

Giving an update on its Penang project, Chan says in January it had its first regional launch in Taiwan for the exclusive condominium project – the 18 East at Andaman that is being developed at Seri Tanjung Pinang (STP), Penang.

“Over 200 people expressed interest in the 18 East at Andaman at the Taipei launch. These interested buyers were looking at the bigger units, which were the two to three bedrooms and facing the sea.” 

E&O recently got the nod start land reclamation works for Phase 2 of Seri Tanjung Pinang (STP2).

STP2 is expected to stretch over 15 to 20 years comprising mixed development of residential and commercial components. Analysts estimated that STP2’s total cost to be RM2.8bil and gross land cost at RM94 per sq ft (net land cost at RM133 per sq ft). STP2, covering 760 acres is touted as a rerating cataylst for E&O shares. 

Chan says the advantage with reclamation is that E&O will have a clean slate to undertake the master planning. “The development of STP2 is long term and as long as Penang continues to grow, there will be a need for land resources,” he adds. 

E&O has prequalified the contractors for the project and it is now undertaking the due diligence.

It has opened the tenders for the reclamation in January and expects to close the tenders by end-February and award the jobs by the first half of 2015.

“As for the total reclamation cost, this will be from the tenders provided by the contractors,” he says.

Also the Securities Commission and E&O’s shareholders have approved the RM500mil convertible medium-term notes (MTN) programme.

“We have not issued it as yet as it depends on its cashflow requirement. We expect the notes to be fully taken up. The coupon is 2%. They are convertible into shares at RM5 per share.

The MTN will cover the initial preliminary and infrastructure works and the balance will be covered by completion bank guarantees. - The Star