Jonathan Eu
Chief operating officer United Industrial Corp
An august name among property stocks looks set to make a comeback on the Singapore Exchange, only this time around it will be helmed by a 4G or fourth-generation leader.
On April 23, in a special resolution that requires 75% of those present to vote in favour, United Industrial Corp (UIC) will be renamed Singapore Land Group or Singland for short, says a UIC announcement on April 1.
Since the renaming of UIC to Singland is a special resolution, 75% of shareholders present or by proxy have to vote for the resolution. UIC’s two major shareholders are UOL Group, with a deemed stake of 50.37% and JG Summit Holdings with 37.05%, according to its annual report. Minority shareholders comprise just 12.58%. Although UIC has more than 1.4 billion shares in issue, it has only around 10,000 shareholders.
Any special resolution put forward by the company would probably require an irrevocable undertaking from JG Summit to vote in favour.
“We have very good relations with them, with the next generation, with Lance in particular,” says Jonathan Eu, COO of UIC. Lance Gokongwei is the CEO of JG Summit and chairman of Robinsons Land, both listed in the Philippines. Gokongwei is also a member of UIC’s audit and risk committee.
Eu is from the storied Eu family behind the traditional Chinese medicine company Eu Yan Sang. On the maternal side, he is the grandson of Wee Cho Yaw, chairman of both UIC and UOL, and nephew of Wee Ee Lim, a director at UIC and deputy chairman of UOL. Eu is also the nephew of Wee Ee Cheong, a substantial shareholder of UIC and group CEO of United Overseas Bank (UOB). Lim Hock San, the former president and CEO, retired on Sept 30, 2020.
What are the plans on ownership? With such a low free float, some investors believe the company could be privatised? “Any options are contingent on the two major shareholders. To that extent, there’s no right or wrong answer to what’s next. It’s contingent on what the other shareholder wants to do,” Eu says. However, the Wee’s, Go’s (James and Antonio Go are Lance’s uncles) and Gokongwei’s are known to be friendly parties. The patriachs of both families — Wee Cho Yaw and the late John Gokongwei — came from Fujian province in China. The Go’s and the Gokongwei’s are known for their philanthropic work there.
Among the 4G leaders, both Gokongwei and Eu are also alumni of The Wharton School at the University of Pennsylvania, one of the eight famed Ivy League schools in the US. In age though, Lance is half a generation older at 55 to Eu’s youthful 39.
To Eu, the name Singland carries many connotations and memories. “Alongside having a singular name, for me, there is huge respect and heritage owed to Singland. Former chairman SP Tao was such a visionary back in the day when he envisioned and executed key developments such as Marina Square and its three hotels, and The Gateway. It’s a natural nod to the past and with the view to what we can achieve in the future and that’s a natural choice for us to centre on,” Eu says.
SP Tao or Tao Shing Pee took over Singapore Land in 1973, transforming it into a developer of commercial properties. UIC then acquired Singapore Land in 1990 and expanded its portfolio of prime commercial assets which currently includes 2.5 million sq ft of office space and 1 million sq ft of retail space in Singapore. Under Tao, Singland developed Clifford Centre, Shell Tower (currently Singapore Land Tower), Marina Square, The Gateway which was designed by famed architect IM Pei and a residential development Arcadia on Arcadia Road. Incidentally, the twin towers of The Gateway have the appearance of a gateway to Singapore when viewed from the sea.
The group also owns several overseas investment assets in China and the United Kingdom. In China, UIC has a 30% stake in Park Eleven, a mixed-use development in Shanghai, north of the Hongqiao CBD. As at Dec 28, 2020, the group achieved 89% sales for the 347 residential units launched in Phases 1 and 2. The balance of 51 residential units is scheduled to launch under Phase 3 in 2021.
In the UK, UIC has a 50% share of 120 Holborn, a mixed-use freehold development in Midtown, Central London, a short walk from Chancery Lane and Farringdon Underground Stations. As at end December 2020, the development has a committed occupancy of 92%.
Digital transformation
Transforming UIC into a digitally-enabled cutting-edge developer was always going to be a challenge. But soon after Eu was appointed COO in
January 2020, an unexpected tailwind came in the form of Covid-19. “In a strange way, I found it beneficial from a selfish standpoint. The company was traditional. Everyone here was conditioned to be status quo and to impact change was a work-in-progress,” Eu admits. “When it came to making key decisions during Covid such de-risking parts of the business, there was no [business continuity planning]. I had to deploy laptops to the staff because 80% were on desktops,” he says of UIC’s 370 employees.
When meetings had to be done on Microsoft Teams, most of the staff did not know how the video-conferencing software worked. “We never envisioned in 2020 that Teams will be the de facto norm,” Eu acknowledges. Initially, Eu was posted to UOL, UIC’s parent. “We were trying to present to UOL what Microsoft Teams is about. It’s now a sense of personal satisfaction to see people coming into a room and everyone has laptops,” he adds.
Another anecdote Eu relates is when one of UIC’s long-time employees in the commercial team told him she had learned about cloud computing. “That’s nice because she felt the cloud was a foreign space for her,” he describes.
When Eu joined UIC, he could still see old typewriters in Singapore Land Tower. “We have four of them in the office. Some of the admin staff were still using them.”
Refurbish, redevelop, REIT
Having dragged UIC into the 2020s, Eu is now looking to unlock as much value as possible. “One of the key tasks is assessing our portfolio and the goal is to optimise the portfolios, be it through asset enhancement initiatives (AEIs), redevelopment or even potentially divestment,” says Eu, who also would not rule out a REIT.
Asset enhancement works for Singapore Land Tower started at end January and are targeted to be completed in the later part of 2023. On March 1, UIC announced it had secured a $300 million green and sustainability linked loan, of which $100 million will be used to upgrade Singapore Land Tower. The AEI will have more green features and a generally low emissivity environment. Cyclists — Eu appears to be an avid one himself — will cheer the end-of-trip facilities with changing rooms and showers provided.
“Although the AEI is not without its challenges and constraints, we are quietly confident the building will look refreshed and we are addressing what office buildings of the future will require for the tenant mix of tomorrow. How do we address what tenants of the future require? At the back end of 2023, we should have something that is in line with what we want,” Eu says.
Elsewhere, at Clifford Centre, upgrading the air-conditioning system is underway, including installing permanent Ultra Violet-C emitters to keep the air clean. SGX Centre too is being upgraded so that it can achieve a Green Mark Platinum certification upon completion of work.
The Gateway is upgrading its air conditioning system by replacing the variable air volume controllers and thermostats to comply with Green Mark requirements. Tampines Plaza
1 and 2 have had four electric vehicle chargers installed. AEI works to upgrade the main office lobbies for both buildings have started.
“Tampines Plaza has softer, refreshed lobbies and common areas, something we haven’t done since the 1990s. For the rest of the buildings, there are lots of opportunities. We need to assess what options are on the table. Every building except UIC Building is on the table for review, and the timeline from conceptualisation to approval takes a while,” Eu says.
UIC owns a portfolio of commercial property (see table 1) valued at $6.24 billion as at December 31, 2020. In addition, it holds stakes in associates valued at $568.8 million, and joint ventures valued at $110 million. Its shareholders’ funds stood at $7.34 billion excluding non-controlling interests, most of which comprised retained earnings. Total shareholders’ equity was marginally below $8 billion, translating into NAV of $5.12 per share.
The UOL-UIC relationship
Despite UIC being a standalone entity, Eu sees the relationship between UOL and UIC as critical. In residential development, UOL usually takes the lead. For instance, in March 2020, UOL, UIC and Kheng Leong Co acquired a residential site in Canberra Drive for $270.2 million in a 50:30:20 ratio. The site is being developed into a 448-unit residential development by the JV.
“We try to get input from all stakeholders. [In Canberra Drive], Kheng Leong comes in but there’s a higher
proportion of ownership from UOL and by shareholding, we allow UOL to make key decisions,” Eu says.
Kheng Leong is a privately-held family investment company belonging to the Wees and runs its own balance sheet. “Relative to [UOL and UIC], it’s not at that scale. It’s not as big as UIC in terms of its own balance sheet,” Eu indicates, referring to UIC’s shareholders’ funds of almost $8 billion. “It’s a family office with real estate exposure and self-sustaining.”
To the commercial portfolio, Eu places UIC’s growth strategy into three buckets. In the short term, it is about the UIC team, he says. Now that he has digitalised the team, in the second bucket, he wants to relook UIC’s domestic portfolio in the medium term.
“The medium-term phase is about doing what we think is appropriate for the portfolio domestically, making sure we’re getting the best returns, whether it’s asset management or selective redevelopments,” he says.
Clifford Centre and CBD incentive scheme?
The government launched the CBD incentive scheme in 2019. For core CBD, the plot ratios have been rebased to 15. “It’s an equal playing field for everyone in Raffles Place,” Eu says.
A plot ratio of 15 would mean that older buildings could be redeveloped to a height possibly higher than Eu’s grandfather’s building, UOB Plaza 1.
Of course, UIC is unlikely to redevelop Clifford Centre tomorrow. Funding is unlikely to be an issue as UIC’s gearing is just 3.8% but major redevelopment plans would depend on the age of the building, downtime, current rents, expected future rents, the loss of cash flow during the redevelopment phase and, of course, Gokongwei and JG Summit have to be on the same page.
However, the 29-storey Clifford Centre, built in 1974 on a 999-year leasehold site, could benefit from a plot ratio uplift. “There’s an opportunity to look at this. We are a larger site than the Arcade, and we have an individual redevelopment opportunity regardless of whether the Arcade is part of it or not. Our destiny is within our own hands and we’re not constrained by the Arcade,” Eu points out.
“Domestically, whether it’s builtto-core or mixed-use or commercial, I want us to have a skill set to tap on that. I know that we can do this competently in our own domestic market,” Eu says. “In the longer term, it makes sense for the two companies [UOL and UIC] to continue working closely together, and find where our core strengths are. For us [at UIC], mixed-use might be a core strength.”
Eventually, for the third bucket, Eu plans to expand overseas. The markets he is most familiar with are the UK and Australia. While at UOL, Eu spent five years in the UK executing plans for One Bishopsgate Plaza, a mixed-use development in London comprising a 237-room Pan Pacific London and 160 residential units, which will be completed in 2H2021.
A conservative group
The Wee family is notoriously conservative. UOB is viewed as expanding overseas too cautiously. Wee Ee Cheong has said in previous interviews that the bank likes to own 100% of its overseas subsidiaries. This has been the case for UOB Malaysia, UOB Thai, UOB Indonesia and UOB Vietnam.
UOL, UOB and Haw Par Corp are related. In addition to UOL’s stake in UIC, UIC holds 2.4% of UOB while Haw Par holds 4.47% of UOB and 8.54% of UOL.
By the same token, UOL, which stayed profitable through 2020 like UIC, has not made any transforma
tional acquisition in the mould of City Developments. That has also saved UOL from a large impairment exercise.
UOL’s CEO is Liam Wee Sin, who though not a Wee, is similarly cautious when acquiring land for development. “We’re selectively looking at land replenishment but we’re conscious construction costs have gone up and likewise the government has been putting up the red flag on cooling measures given the current uptick in take-up,” Liam said during a results briefing at end February.
UOL too is looking into refurbishment and redevelopment. “We are looking intensely at enhancing our assets through AEIs and refurbishment. We’ve got in-principle approval to redevelop Faber House and Odeon Towers,” says Liam, referring to Faber House’s redevelopment into a 250-key hotel with construction starting next year and the refurbishment of Odeon Towers along with a new seven-storey building on North Bridge Road. “We will continue to look at AEI for plot ratio intensification,” Liam adds.
Discount to NAV
UIC trades at a large discount to NAV and it has done so for years and years (see chart 1). Could this discount narrow? “The short answer is most developers trade at discounts to NAV. Ultimately, market dynamics determine that. Of course, the business model is one part. If I’m optimising the portfolio and there’s value creation and people see it and run through the numbers then, naturally all the forces will determine what the discount is and the narrowing of that will be different. And, our shareholder base is different. The retail ability to shift any of these things is somewhat limited regardless of what we do,” Eu explains.
For instance, CapitaLand, which trades at a discount to NAV, is attempting to narrow that discount by privatising the development business and have CapitaLand Investment Managers or CLIM as the listed entity. Just as CapitaLand recycled its assets into its REITs and turning them into a major success story, CLIM may pave the way for more developers to restructure to narrow their discounts to NAV.
Eu speaks admiringly of the CapitaLand model and its initiatives. Referring to CapitaLand, its CLIM model and the setting up of private funds, he says, “It’s something [if you have] scale and if you have an institutionalised set up. Now, we’re getting to a more institutionalised way of working.”
Private funds are perhaps a bridge too far but could UIC set up a REIT? “There are many considerations. Some of it is timing. The benefit for us is we have an existing base of assets and a pipeline of assets. The silver lining for me is there’s an opportunity and it’s low hanging fruit. If we chose a REIT model, that’s because it has been tried and tested and the S-REIT market here is so robust. I think it’s not hard to look at the merits of it.
That’s definitely an opportunity for us,” Eu says.
Despite Eu’s youth, he exhibits the same caution as his uncles at UOB, UOL and Haw Par where Wee Ee Lim is its deputy chairman and CEO. Encouragement could come from another quarter. Bloomberg reported in December that Robinsons Land is planning a US$500 million ($671.3 million) commercial REIT backed by its office portfolio of 15 office buildings with more than 400,000 sq m (4.3 million sq ft) of leasable area with an estimated value of US$2 billion. That could spur UIC to follow suit with Gokongwei’s support.
By all accounts, with 4G leaders at the helm, Singland will get a facelift but not a new face.