Land swap deal to make TSR a major developer

THE EDGE WEEKLY ISSUE#1001

THE WEEK OF FEBRUARY 10 – 16, 2014

By: JANICE MELISSA THEAN

A land swap deal with the government to relocate the Royal Malaysian Air Force (RMAF) base in Butterworth could seal TSR Capital Bhd’s status as a major property developer when it gets more than 1,000 acres of prime land.

TSR, a joint venture (JV) with Lembaga Tabung Angkatan Tentera (LTAT) and Pembinaan Bukit Timah Sdn Bhd (PBT), will be given 1,007 acres – existing airbase in Teluk Air Tawar, Seberang Prai – in return for building a new RMAF base at a location yet to be determined.

The parcel has been slated for an integrated mixed-use project with a potential (GDV) of more than RM10 billion, TSR said in its announcement to Bursa Malaysia last Wednesday.

“This development will take us at least 10 years (to complete),” TSR group accountant Ng Kim Keong tells The Edge.

“We will start planning the mixed-use development about two years after signing the agreement with the government,” he says, adding that the relocation of the airbase will be done first.

The proposed deal, which is now in the negotiation stage, is due to be signed a year from now.

Last Wednesday, TSR announced that it has received the government’s approval in principle to set up the JV company to enter into negotiation with the latter to redevelop the RMAF base.

TSR will have a 51% stake in the JV, while LTAT and PBT will hold remaining 30% and 19% respectively. 

“We need to buy new land in Penang (to relocate the airbase),” says Ng.

He adds that the new airbase is estimated to cost RM3 billion, including land cost.  “But it could be cheaper as we are looking for land further from town.”  The existing airbase is sitting on seafront land, directly opposite Penang island and 8km away from Butterworth.

It is still early days and , thus, the valuation for the 1,007 acres has not yet been determined.  As this parcel is payment from the government to relocate and build the new RMAF base, theoretically its value should match the estimated cost of the airbase.

“The land may not be worth RM3 billion, so the government will have to provide more if it falls short.  In the same way, there may be an excess if the construction cost is less than the value of the land, and we will have to return that to the government,” says Ng.

The JV partners have yet to work out the financing structure for the construction of the new airbase, but he says the aim is to have a 90:10 debt-equity ratio.  At most, 80% will be debt-financed.

The partners will have to fork out the equity portion according to their respective stakes in the venture. 

“We have broken it down into six phases, so each phase will cost roughly RM500 million.  It will take us four to five years from the signing of the agreement to complete the new airbase,” says Ng.

TSR’s growing property portfolio

“In future, our focus will be more on property development.”  At present, the construction and property development segments contribute equally to TSR’s revenue.

While the 10-year project TSR has envisioned for the Butterworth tract is still some time away, it is expected to add significantly to the group’s GDV pipeline.

TSR says the tract will be redeveloped into a “city of arts, culture and leisure that promotes an eco-sustainable and modern lifestyle”.

“For the next six years at least, we expect to launch GDV of RM100 million to RM150 million each year,” Ng says.

TSR’s flagship development is the 70-acre PD Waterfront in Port Dickson, Negeri Sembilan.  Phase One, with a GDV of RM130 million and from which TSR gets rent income, is completed.

It launched Phase Two, comprising service apartments worth some RM120 million, last September.  “This year, we will launch another serviced apartment project with a GDV of RM150 million,” says Ng.

The total GDV of PD Waterfront is expected to be about RM2.2 billion and TSR will take another eight years to complete the project.

“We are also finalising other land developments in Bandar Enstek, Negeri Sembilan,” he says.

The group has submitted its development order (DO) application for a mixed-use development on a 20-acre tract.  The project, with a GDV of RM400 million, is expected to be carried out in three phases.

TSR has also made DO submissions to build a RM100 million office block in Jalan Semantan, Kuala Lumpur.  “We should be able to launch this by the end of this year,” Ng says.

Based on these projects, TSR could have a potential GDV of more than RM12 billion over the next decade (see table).

Its construction division has an order book of some RM400 million, which will last another three to four years, according to Ng.  This includes the two (MRT) jobs, worth RM330 million, awarded in 2012.  He says the packages are 30% completed currently.

TSR’s market capitalisation stood at RM148.4 million as at last Thursday’s closing.  Its share price moved up 10 sen, or 7.62%, to RM1.43 the day it announced the RMAF land swap, a high not seen since 2007.  Year to date, it has risen 15% before retreating to close at RM1.31 last Thursday.

As at end-September 2013, TSR had net assets per share of RM1.10.

For that quarter, TSR posted a net profit of RM251,000, flat from the RM223,000 in 2012.  This is on the back of 35.03 million in revenue, up from the preceding year’s RM26.4 million.

Net profit amounted to RM1.1 million for the nine months ended Sept 30, 2013, compared with RM1.33 million the year before.  Revenue for period came in at RM77.05 million, higher than 2012’s RM65.83 million. E