Ekovest still keen to buy land parcels in Johor despite a valuation update

Ekovest Bhd, controlled by tycoon Tan Sri Lim Kang Hoo said the company still intends to acquire 20 parcels of land in Johor given their strategic location and prospects.

The land parcels are located within the Johor Bahru waterfront development overlooking Singapore, and close to the Johor-Singapore Causeway.

Ekovest is buying more land to beef up its property development segment.

As at the end-2019, it had a total land bank of about 86ha in Kuala Lumpur, Danga Bay in Johor Bahru, Kuantan in Pahang, and Port Dickson in Negeri Sembilan.

It is proposing to buy the 20 parcels of freehold land in Johor Bahru for a total of RM1.05 billion from Iskandar Waterfront Holdings Sdn Bhd (IWH).

Ekovest has entered into two conditional agreements with IWH, via its wholly-owned unit Timur Terang Sdn Bhd (TTSB).

The first agreement is to acquire 17 parcels of freehold development land measuring a total of 30.49ha for RM869.69 million, which will be satisfied through the issuance of irredeemable convertible preference shares (ICPS) worth RM849.89 million, and a cash payment of RM19.8 million.

The second agreement is to buy three parcels of land measuring 6.32ha for RM180.2 million, which will be fully satisfied in cash, this is according to a filing it made to Bursa Malaysia last November.

However, in light of the outbreak of the Covid-19, Ekovest said there was a valuation update on the lands by an independent valuer.

The valuer noted that the Covid-19 pandemic has resulted in a considerable degree of uncertainty in the property market in Malaysia.

It pointed out that the valuation of the lands vides the valuation certificate dated November 19, 2019, and the valuation report dated January 16, 2020, considered only inputs and data available for the valuation that are likely to relate to the market ‘before’ the global outbreak of Covid-19.

As such, the valuer had on April 24, 2020, issued an updated valuation letter to revise the market value of the lands from RM1.172 million (about RM280 psf) to RM996.65 million (about RM238 psf), representing a downward adjustment of 15 per cent.

In the course of the valuation update, the valuer considered, among others, the longer period required for TTSB to develop the lands in light of the current market environment and Covid-19 which warrants additional holding period adjustments to the value of the lands.

Accordingly, TTSB had on June 17, 2020, written to IWH to revise the total purchase consideration for the lands from RM1.111 billion to RM944.62 million, representing a discount of 5.22 per cent to the revised market value of the lands of RM996.65 million.

However, IWH had subsequently vided its letter to TTSB dated July 10, 2020, highlighted to TTSB that the market price of Ekovest shares has also declined substantially since the parties executed the SPAs on November 21, 2019.

The closing price of Ekovest shares as at November 20, 2019, being the full trading day of the shares before the SPAs date was 81.5 sen apiece, whereas the closing price of Ekovest shares as at July 9, 2020, was 53 per share, representing a 35 per cent decline.

In light of this, IWH has requested for TTSB to consider maintaining the total purchase consideration for the lands at RM1.111 billion as well as the mode of settlement of the total purchase consideration for the lands as set out in the SPAs.

Notwithstanding the above, TTSB has declined IWH’s request to maintain the total purchase consideration and its mode of settlement at this juncture.

Both parties have instead agreed to reassess the matter towards the end of the year with the hope that the extent of the effects of the Covid-19 on the Malaysian economy and property market will be more visible by then.

In this regard, TTSB and IWH had vided an exchange of letters dated July 14, agreed to extend the conditional period for another six months from August 21, 2020, to February 20, 2021, for the parties to fulfill the conditions precedent set out in the SPAs.

“The extended conditional period would allow the company and TTSB to continue monitoring the developments of the Malaysian economy and property market as well as the share price of Ekovest, at least until the end of this year,” it said.

Meanwhile, Ekovest expects the sales of completed properties to contribute positively to the company’s revenue and earnings for the next financial year.

It also expects a higher revenue contribution from EcoCheras, a mixed development situated on 4.6ha of freehold land on Jalan Cheras.

EkoCheras, with a total gross development value of about RM2 billion, comprises three serviced apartment blocks offering a total of 1,516 units, and a Grade A office tower with 106 stratified office units.

The other components include a hotel and EkoCheras Shopping Mall with a net lettable area of about 600,000 sq ft over four levels.

The mall, with 288 retail stores and built at a cost of RM320 million opened in September 2018.

For the nine months ended March 31, 2020, Ekovest registered revenue of RM1.08 billion and pre-tax profit of RM135.88 million as compared to revenue of RM996.68 million and pre-tax profit of RM168.67 million reported in the same period a year ago.

The property development segment reported lower revenue of RM27.79 million and a gross profit of RM8.062 million as compared to revenue of RM168.75 million and a gross profit of RM52.02 million in the preceding year corresponding quarter.

In a June filing with Bursa Malaysia, Ekovest said the lower revenue and gross profit were mainly due to the completion and hand over of the three blocks of service apartments in EkoCheras during the previous financial year.

The revenue for the group’s investment holding division in the current quarter increased from RM11.22 million to RM34.12 million due to the recognition of an increase in food and beverage (F&B) related activities of RM9.41 million in the mall, and rental income of RM13.8 million.

There was no revenue recognised in the preceding corresponding year because the F&B related activities only commenced in the last quarter of 2019.

Source: NST