This article first appeared in The Edge Malaysia Weekly on December 4, 2023 - December 10, 2023

Despite the property industry’s challenges, such as a labour shortage and escalating building material prices, Sime Darby Property Bhd (SDP) ended FY2022 with an operating profit of RM487.8 million and sales of RM3.7 billion — its highest ever following its demerger in 2017. According to group managing director Datuk Azmir Merican, the company’s revenue grew 24% year on year (y-o-y) to RM2.7 billion, while profit before tax (PBT) increased 64% to RM458.9 million.

“The substantial rise in PBT was supported by increased profitability across all our business segments, including contributions from our land monetisation activities and sale of non-core assets. We launched products worth RM2.6 billion in gross development value (GDV), of which 46% comprised industrial products in Elmina Business Park, Bandar Bukit Raja and Serenia City in Selangor; Hamilton Nilai City and Nilai Impian in Negeri Sembilan; as well as Bandar Universiti Pagoh in Johor,” he says.

Apart from the positive financial results, 2022 was also an eventful year for SDP. In May last year, it unveiled the 1.09-acre Elmina Rainforest Knowledge Centre (ERKC) in its City of Elmina township, demonstrating its efforts to implement good biodiversity practices, focusing on conservation actions, research and development, environmental education and eco-tourism, among other green initiatives.

The following month, the Kuala Lumpur Golf & Country Club (KLGCC) celebrated the return to its prestigious legacy, reverting to its previous name from TPC Kuala Lumpur. As the centrepiece of its KLGCC Resort township, it leverages the premium value of the location nestled on the outskirts of Kuala Lumpur.

The company’s joint venture with LOGOS SE Asia Pte Ltd (LOGOS Property), SDPLOG, also marked a milestone with the commencement of groundwork at its maiden asset, the E-Metro Logistics Park in Bandar Bukit Raja, Klang.

“On the international front, FY2022 was a pivotal year for our Battersea Power Station project, with the public opening of the Grade II* listed Power Station and Electric Boulevard in October last year, which have received more than 11 million visitors since,” says Azmir.

Moving forward, as SDP is looking to transform itself into a sustainable real estate company, it seeks to have higher recurring income for the group while growing its investment and asset management segment. It is also looking to expand its high-rise portfolio. Azmir shares the developer’s growth plan and some of his thoughts on the future of the company.

Datuk Azmir Merican: We have been focusing on execution in the last 12 months. We sold 3,332 units and successfully delivered 1,855 in 2022, while maintaining our product quality with an average of 83% for our Quality Assessment System in Construction (Qlassic) performance of our residential offerings — head and shoulders above the Qlassic national average of 77%.

As part of our commitment to innovation and creativity, we also embarked on the Concept Home 2030 initiative, which aims to redefine how homes are designed and built, envisioning a future where homes incorporate new and innovative approaches. In support of value creation within and extending our township developments, we invested RM530 million in 2022 for infrastructure to maintain the needs of future communities in residential, commercial and industrial precincts.

We were cautious at the start of 2023. However, the market responded well and by the first half of the year, SDP had received 40 awards, cementing its excellence in brand and market perception.We registered revenue of RM1.4 billion for the six months ended June 30, 2023 (1HFY2023), marking a 25% increase from RM1.1 billion in the same period a year ago. The group’s gross profit margin exceeded expectations at 28%, with profit before tax at RM212.2 million and profit after tax and minority interest (Patami) at RM131.7 million, reflective of the more competitive and dynamic market environment.

On Aug 21, 2023, we completed our second sukuk issuance under the Sukuk Musharakah Programme with a nominal value of RM600 million. The issuance reached an oversubscription of more than eight times and accumulated an order book valued at over RM4.8 billion, a testament to the market’s confidence in our fundamentals.

Confident that the strong momentum seen in 1H2023 will continue into the second half, we revised our sales target of RM2.3 billion to RM2.7 billion and the GDV launch target of RM3 billion to RM4 billion. Given the positive outlook, we believe we are well positioned to capitalise on the resilient market demand, which presents us with an opportunity to maximise our property development growth over the coming years. We are optimistic about our ability to achieve our goals for the year and subsequently strive towards maximising shareholders’ value.

In 2021, we launched our SHIFT25 strategy, aimed at transforming SDP from a pure-play residential-focused property developer into a sustainable real estate company by 2025. This means having a broader presence along the real estate value chain encompassing property development, as well as investment and asset management (IAM).

We undertook strategic land activation to drive sales, matching our product launches with market demand. Our agility in taking advantage of the market conditions has resulted not only in enhanced sales but also in a more diversified product portfolio. For example, we made good progress in FY2022 whereby we achieved our highest-ever operating profit of RM487.8 million, Patami more than doubled to RM315.8 million and PBT grew 64% y-o-y to RM458.9 million. All segments were profitable and, on top of that, we achieved the highest sales since the demerger at RM3.7 billion.

While property development continued to be the top contributor, accounting for 93% of total revenue, the IAM segment saw 18% y-o-y revenue growth in FY2022. This is a healthy indicator as we work towards our target of achieving 30% recurring income stream by 2025.

Moving forward, we will continue to focus on building our property development business while diversifying our product mix. In tandem with a more subdued market, we will rein in our aggressive product launches, but remain agile and introduce products that resonate with the market in order to maintain sustainable earnings visibility.

Beyond property development, we seek to grow our IAM segment through the generation of higher recurring income contributions to the group. We also expect to carry out the final closure of the Industrial Development Fund (IDF) as we complete the first phase of the E-Metro Logistics Park in the coming quarters.

One of the things we have looked at is making sure our property development business performs well. Traditionally, we excel in landed residential homes, but if you see this year, we are planning to launch more than RM1 billion of high-rise developments. That is not something we have typically done in the past.

Now, we are also going strong in integrated high-rise developments, and we are confident about this segment, which has become a very important sales contributor. We’re looking at about RM1 billion to RM1.5 billion a year moving forward.

Most of all, we want to continue developing products that address different segmental needs. It is SDP’s goal to develop self-sustaining townships comprising a mix of landed properties, high-rise residences, commercial and retail offerings, and recreation parks.

The assets under management (AUM) is a critical metric for us. Hence, what we want to do is to keep launching new funds and products to keep growing our AUM. We have successfully raised about RM700 million. We expect to close the fund at RM1 billion by the first quarter of 2024. We will need time and we need the market to be right.

Our investment portfolio currently encompasses 5.4 million sq ft of diversified assets across the commercial, retail, and industrial and logistics sectors in Malaysia, Singapore and the UK.

Two upcoming retail malls in KLGCC Resort and City of Elmina are under development, totalling 420,000 sq ft. We commenced construction of a ready-built warehouse (RBW) in Bandar Bukit Raja Industrial Gateway in August 2022 and secured pre-commitments for 487,000 sq ft of space from two anchor tenants: CEVA Logistics, a multinational logistics and supply chain company; and SL Ng, a home-grown fast-moving consumer goods market expansion service provider in Malaysia. The RBW was recently completed.

For our joint venture with LOGOS Property, we commenced construction of two RBWs, namely E-Metro Hub 1 (December 2022) and E-Metro Hub 2 (April 2022). Both are expected to be completed in 2024.

Our target is to have a 70:30 split between property development income and recurring income. Currently, we are at 90:10.

As part of our SHIFT25 transformation strategy, we are exploring disruptive opportunities, including geographical expansion as well as other value accretive and synergistic opportunities to broaden our income stream, especially recurring income.

Currently, the only development we have outside of Malaysia is the Battersea Power Station in the UK, of which SDP is a 40% shareholder. We have invested in the UK for more than 10 years and we should be able to do more as we’re well versed with the market now. But whether further investing in the UK or other countries, we will only pursue the right opportunities.

For SDP, it aligns with (i) our purpose to be a value multiplier for people, businesses, economies and the planet; and (ii) our vision of advancing real estate as a force for collective progress, in harmony with the planet’s resources. It is part and parcel of our commitment to being a force for good. We must see beyond the business and think about the impact that we’ll be leaving on our next generation. We owe it to them.

Since 2011, we have planted more than 125,000 trees, of which almost 25,000 are in the Endangered, Rare and Threatened (ERT) category. Through this initiative, it is estimated that 13,000 tCo2e- has been sequestered from the atmosphere.

In May 2022, we officially launched ERKC. Operated in partnership with a non-governmental organisation (NGO) — Tropical Rainforest Conservation and Research Centre (TRCRC) — ERKC focuses on conservation, research and development, environmental education, eco-tourism and community engagements.

TRCRC also operates the 10-acre Elmina Living Collection Nursery, adjacent to ERKC. The nursery acts as a genetic store for the production and conservation of ERT species of trees as assessed by the International Union for Conservation of Nature Red List of Threatened Species.

In 2022, we began developing our net zero pathway with a strategic partner to help us chart our carbon footprint reduction, focusing on our operational Scope 1 and Scope 2 carbon emissions before moving towards developing a baseline for Scope 3 in 2023.

Sustainability is a long-term journey, and we want to lead and make a difference. Hence, we will: (i) move towards our net zero goal; as well as to (ii) continue championing urban biodiversity and make rewilding and restoring the soil as a target to achieve in all our townships. We have been working with various NGOs and experts in this space to make it happen, and we will continue to do so.

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