EWI in UK build-to-rent deal

Devel­oper en­ters into a RM2.12bil deal with Amer­i­can pen­sion fund

The Star Malaysia - StarBiz - - Front Page - By TOH KAR INN karinn@thes­tar.com.my

PETALING JAYA: In yet an­other first for the Ecoworld brand, EcoWorld In­ter­na­tional Bhd (EWI) has suc­cess­fully clinched its first buildto-rent (BTR) deal for two of its project sites in Bri­tain, at an es­ti­mated value of £400mil (RM2.12bil).

This will be Malaysia’s first prop­erty devel­oper to have this in­ter­na­tional tie-up with a pen­sion fund for a BTR project in Bri­tain. Ke­nanga In­vest­ment Bank’s head of eq­uity re­search, Sarah Lim Fern Chieh, de­scribed the part­ner­ship as com­mend­able and help­ing to meet the sales tar­get of EWI.

“It (the part­ner­ship) locks in sales ahead of Brexit and helps with meet­ing sales tar­gets. It is also a re­flec­tion of the con­fi­dence in EWI at a more in­ter­na­tional level, which is com­mend­able.

“We like these deals, as it means surety in fu­ture con­tri­bu­tions with high cash and profit con­ver­sion on com­ple­tion, which is a de­cent trade-off for per­haps lower mar­gins, which is typ­i­cal in such ‘ en bloc’ deals,” Lim said.

While the part­ner­ship is viewed pos­i­tively, Lim said if the method of recog­ni­tion fol­lows the con­ven­tional stan­dards in Bri­tain, then earn­ings recog­ni­tion from this project is

un­likely (to be) im­me­di­ate (with tar­get de­liv­ery only in 2020). Lim cov­ers the par­ent com­pany of EWI - Eco World De­vel­op­ment Group Bhd - but not EWI di­rectly.

Based on the UK’s method of recog­nis­ing rev­enue from prop­erty de­vel­op­ment, the earn­ings are back-loaded and re­flected in the books af­ter the units are com­pleted and handed over.

A fund man­ager said EWI is ex­pected to show good earn­ings num­bers from this year af­ter com­plet­ing its maiden project in Lon­don, which is the res­i­den­tial Amelia Build­ing in Lon­don City Is­land.

The units have been handed over to pur­chasers this quar­ter and the num­bers are ex­pected to be re­flected in EWI’s books next quar­ter.

EWI’s ex­ec­u­tive vice chair­man, Tan Sri Liew Kee Sin, had said pre­vi­ously that he wanted to build a sus­tain­able stream of prof­its for EWI, and to­wards this end, was look­ing at launch­ing projects ev­ery year.

In a heads of terms inked yes­ter­day, North Amer­i­can pen­sion fund In­vesco Real Es­tate will for­ward fund the de­vel­op­ment of more than 1,000 BTR homes in Kew and Bark­ing.

The part­ner­ship is ex­pected to fur­ther cre­ate value for the Ecoworld brand. In­vesco Real Es­tate man­aged over US$66.4bil in real es­tate glob­ally as of Dec 31, 2017.

EWI’s 70%-owned UK joint ven­ture - EcoWorld Lon­don - will com­plete the con­struc­tion of the de­vel­op­ments to the high spec­i­fi­ca­tions agreed with the in­vestors, and will then un­der­take the long-term man­age­ment of the as­sets on their be­half.

In gen­eral, BTR schemes are projects spe­cially de­signed to be sold to pen­sion funds and in­sur­ance com­pa­nies that will own the de­vel­op­ment for rental yield.

Ac­cord­ing to EWI, plan­ning per­mis­sion has been se­cured for both sites and de­vel­op­ment work has al­ready com­menced with con­struc­tion due to be com­pleted in stages from 2020 on­wards.

As both par­ties head into a pe­riod of ex­clu­siv­ity, the de­tailed con­trac­tual ar­range­ments are tar­geted to be con­cluded by the end of Oc­to­ber 2018.

The BTR deal se­cured is in line with EWI’s strate­gic move to make the BTR busi­ness one of the key growth driv­ers for EcoWorld Lon­don.

“EcoWorld Lon­don will con­tinue to seek op­por­tu­ni­ties for sim­i­lar BTR agree­ments as part of its growth strategy.

“Ac­cord­ing to re­search by CBRE, the an­nual BTR in­vest­ment vol­ume in the UK is cur­rently rel­a­tively small at £2.4bil (RM12.69bil) com­pared to £103bil (RM544.73bil) a year in the United States.

“With North Amer­i­can funds now ac­tively pur­su­ing BTR op­por­tu­ni­ties in the UK, there is huge growth po­ten­tial for the sec­tor and CBRE ex­pects the an­nual in­vest­ment vol­ume to quadru­ple within five years to £10bil (RM52.89bil),” said EWI in a state­ment yes­ter­day.

Liew said the group had al­ready re­ceived ex­pres­sions of in­ter­est from other funds, par­tic­u­larly from Asia, which are keen to pur­sue po­ten­tial in­vest­ments into the BTR sec­tor in the UK. “This sig­ni­fies their con­fi­dence and ours in the pos­i­tive long-term prospects of the UK prop­erty mar­ket, par­tic­u­larly that of the BTR sec­tor.

“As a busi­ness, we are per­fectly placed to de­velop and man­age these schemes to the high qual­ity that in­vestors and res­i­dents ex­pect from us and through EcoWorld Lon­don, we have the best-in-class BTR ca­pa­bil­i­ties.

“This sig­nif­i­cant in­vest­ment by a US-based global pen­sion fund in two of our projects is tes­ta­ment to that,” he said.

EWI’s BTR busi­ness model is cen- tred around a golden brick ar­range­ment where land and costs in­curred are paid up­front, with the re­main­ing costs funded through a pro­gres­sive pay­ment struc­ture.

This en­ables the group to ef­fec­tively lever­age on a rel­a­tively small amount of up­front eq­uity to fund the en­tire BTR de­vel­op­ment and gen­er­ate pos­i­tive project cash flows ear­lier.

As a re­sult of this, EWI’s BTR busi­ness can be scaled up quickly and al­lows the group to work on mul­ti­ple projects con­cur­rently.

Com­ment­ing on the deal, EcoWorld Lon­don CEO Cheong Heng Leong said the tim­ing of the an­nounce­ment clearly demon­strates Lon­don’s en­dur­ing ap­peal to well-in­formed global prop­erty in­vestors who can see be­yond cur­rent pre-Brexit mar­ket un­cer­tain­ties to seize good op­por­tu­ni­ties to ac­quire qual­ity as­sets.

“This will sta­bilise and en­hance EWI’s in­come gen­er­at­ing ca­pac­ity go­ing for­ward to in­clude steady cash­flows from in­sti­tu­tional in­vestors buy­ing BTR prop­er­ties to com­ple­ment re­tail sales made to lo­cal home­own­ers and in­ter­na­tional in­vestors in the open mar­ket sale side of the busi­ness,” said Cheong.

Of EcoWorld Lon­don’s 12 de­vel­op­ment sites in Greater Lon­don, al­most half are to be ear­marked as BTR projects.

It’s a deal:Liew (stand­ing, left) and In­vesco Real Es­tate di­rec­tor John Ger­man (stand­ing, right) look on as EcoWorld Lon­don CEO Cheong Heng Leong (seated, left) and In­vesco Real Es­tate man­ag­ing di­rec­tor Si­mon Red­man sign the Heads of Terms.

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