Property Development Segment
2016 was a challenging year for the property development division as the rising costs of living, weaker job prospects, more stringent bank lending policies, and general economic uncertainty, led many potential buyers to hold off on purchasing new properties. We have therefore been extremely conservative. This year, we completed 2 developments - Three28 Tun Razak, a boutique development with 166 units located on Jalan Tun Razak, and Park Manor, a development comprising 41 villas located in the award winning Sierramas residential estate. Take up rates for Three28 Tun Razak and Park Manor as at 31 December 2016 were 96% and 22% respectively. We also have two ongoing projects - Stonor 3, a collection of 400 luxury curated homes located in the heart of KLCC, which was launched this year, and Damai Residence, a boutique, luxury, residential offering comprising 31 family-sized homes.
We remain cautious about the local market in 2017 and believe that the first half of the year will continue to be soft.
We are proud that IGB was ranked amongst the top 10 developers once again in The Edge Malaysia’s Top Property Developers’ Award. This marks the fourteenth consecutive year that IGB have been an award recipient.
The hotel division posted positive growth in FY2016, bolstered by the performance of four hotels which opened in 2015, namely Cititel Express Ipoh, Cititel Express Penang, The Wembley Penang, and The Tank Stream Sydney. This was in spite of a generally challenging year for the hospitality industry, which saw a reduction in the volume of travel, entertainment and meetings, as many companies, particularly those in the oil and gas sector, downsized their operations in Malaysia and cut costs. Additionally, with Malaysian Airlines withdrawing flights from several key markets as part of its ongoing restructuring plans, international arrivals have been impacted.
To address these challenges, we adopted a more aggressive approach to marketing and sought to better manage our costs. For example, we intensified our distribution through electronic channels, launched a digital campaign and worked with online travel portals. We also implemented an energy savings programme among other initiatives.
Several assets were disposed of in the year, namely, The Renaissance Kuala Lumpur Hotel, Cititel Express Kuala Lumpur and Micasa Hotel Apartments, Yangon.
We expect 2017 to continue to be challenging, particularly if the Government goes ahead to implement the Service Charge Top Up and the proposed Tourism Service Fee which will result in an increase in cost pressure. We anticipate seeing a slight improvement in visitor numbers as a result of a weak ringgit, improved connectivity between China and Malaysia and the easing of the visa process for tourists from China and India.
Property Investment and Management, Commercial Segment
The property investment and management, commercial segment posted a decline in both segmental revenue and profit due to the general slowdown in the economy and oversupply of office space in the Klang Valley. Occupancy of four of the office towers in Mid Valley are currently above 90%, while occupancy of the fifth tower, Centrepoint North, which saw its previous single occupant vacate the building in 2015, is currently about 55%. The occupancy of Plaza Permata, GTower and Menara Tan & Tan are 92%, 82% and 81% respectively. GTower was particularly impacted by companies in the oil and gas industry downsizing their operations in Malaysia, as these companies made up its key tenant profile.
This year, we remained focused on enhancing customer service, the environment within our buildings and attracting new tenants. We offered a range of incentives such as longer rent free periods, worked to secure longer term tenancies across a range of businesses and industries and ensured top notch security, cleanliness and maintenance.
In the new year, we will work to strengthen our management team so that they are better able to support our business objectives. We are confident that given the prime locations of our buildings and captive market, we will be able to maintain healthy occupancies across all our assets in 2017.
Property Investment and Management, Retail Segment
Despite a slight improvement in consumer sentiment in 2016, the retail market remained challenging as new malls opened in the Klang Valley and the popularity of online shopping increased. IGB Real Estate investment Trust (“IGB REIT”), which owns Mid Valley Megamall (“MVM”) and The Gardens Mall (“TGM”), continued to post positive growth in the year. Both malls worked to maintain their competitiveness through carrying out asset enhancement initiatives (“AEI”) to improve the shopper experience and shopping ambience and bringing in new brands to keep the tenant mix fresh and on trend.
New brands at MVM included Go Noodle House, Elianto Make Up, Oakley, CK Performance, Stride Rite, Obermain, Kit Kat Chocolatory, Ray Ban, Watchfinders, Sheldonet Toystore, Llao Llao and Marry Merry. While at TGM, luxury brands such as Tory Burch, Bulgari, Lancome, Lalique, Kens Apothecary and Bowers & Wilkins, were introduced. A new premium area, Les Suites at TGM, also made its debut this year. The area, which is a one-stop destination for customers looking to plan a wedding, houses The Occasions Eventeur, Mun Keat Photography, Celest Thoi and The Studio, a multi-brand store featuring local and ASEAN designer.
2017 is looking to be another challenging year. However with a proactive asset management strategy and focus on sustainable long term growth, IGB REIT is well positioned to weather the challenges ahead and continue to create value for all its stakeholders.
The construction arm of the Group has been busy with several large ongoing projects as listed below:-
Mid Valley City Southpoint (Parcel 3)
Mid Valley City Southpoint (Parcel 3) is the last major component of our Mid Valley City development. Including car park, the development has a Gross Floor Area of 2.2 million square feet.
Construction works are still ongoing, with the 55-storey structure anticipated to top out by July 2017. A decision last year to convert 19 floors of the upper levels of the tower from offices to residences has necessitated amendments to the approved Development Order (D.O.). The amended D.O. is currently awaiting approval from the authorities.
The office levels are expected to be completed for fit out by September 2017, with the residential levels planned to be completed by the second quarter of 2018.
Mid Valley Southkey
Works on Mid Valley Southkey, located in Johor Bahru, is progressing, with substructure works completed, and superstructure works targeted for completion by the first quarter of 2018. Architectural, mechanical, and electrical works have commenced and are scheduled for completion in late 2018.
An amendment to the approved D.O. rationalising the 33-acre development from a single parcel into two parcels is currently under application to the authorities. The first parcel currently under development will include the MVM Southkey, which will have a net lettable area of 1.5 million square feet. The mall is targeted to open its doors to the public at the end of 2018.
Pangkor Island Resort
The Pangkor Island Resort is undergoing redevelopment work, and will be converted into 68 luxury villas with 5-star amenities. A D.O. from the local authorities has been obtained, and an application for the amalgamation of land titles is currently pending approval. Submission of our building plans will be made once the issuance of a new land title is obtained. Subject to these being received, construction work for the resort will commence in 2017.
Other Operating Segments
Water Treatment in China
The China Water Group currently operates in Jiangsu Province Ganyu, Shandong Province Yantai and Zoucheng, China. Our principal activities include the management, operations and maintenance of waste water treatment plants for concession periods ranging from 23 to 25 years.
Our main challenges this year have been attracting and retaining talent with the right skillsets for our business and managing revisions in water tariffs to better manage increasing operating costs. To address these challenges, we will monitor water tariffs periodically and work closely with the local authorities to ensure that tariffs are adjusted in a timely manner in line with increasing costs. We will also review our remuneration packages to ensure that they remain competitive and continue to enhance both the working environment and culture so as to support the continued growth and development of key management personnel. Additionally, we will be broadening our search for new talent as we continue to expand our business so that we are better able to find personnel with the right competencies to support our growth.
Moving forward, we are confident that we will be able to sustain our growth and expect sales to continue to improve as we commence the trial run for the Zoucheng upgrade project. Revisions to the water tariffs for select plants are also expected in the coming year, pending approval from the local authorities.
International schools, including IGB International School (“IGBIS”), have not been spared from the challenging economic environment as increased economic uncertainty and a slowdown in the oil and gas sectors in particular, have resulted in an out ow of expatriates in the year. The school therefore stepped up its marketing efforts this year to reach out to a broader pool of families as well as to increase brand awareness.
Initiatives were carried out to both attract new students to the school as well as build loyalty amongst existing students and their families. For example, IGBIS started offering scholarships to new students transferring to IGBIS from other schools in Malaysia and offered discounts to those who enrolled with the school on Open Days held. It also introduced a two tiered fee structure to pioneer families to encourage them to continue with IGBIS and enrol siblings of pioneer students at the school as well. Fees for the Early Years Programme were also frozen and 3 and 5 year loyalty discounts applicable to families who stay with the school were introduced.
This year, we expanded our student body and celebrated the outstanding results of our first batch of IB Diploma graduates. 100% of students who took the examinations passed, achieving an average score of 34 points out of 45 (the worldwide average is 29 points), with nearly 20% of students scoring 40 points or higher.
2017 is set to be another challenging year for international schools in Malaysia. Despite this, we believe however that IGBIS has significant headroom for growth and is well-positioned to take advantage of the potential market available.
2016 saw the soft launch of Elements Medical Fitness Sdn Bhd (fka Elements Gym Sdn Bhd) (“Elements Medical Fitness”), Malaysia’s First Integrated Medical Fitness Centre with professionally administered well-being programmes. Since our launch, we have received positive response from the public. Take up of our programmes however have been slow as consumers reined in their spending on the back of slower economic growth, weaker job prospects and rising costs of living. Moreover, as a business offering a new lifestyle concept, we have had to work hard to educate the public about our offers, including the benefits of our programmes and what sets us apart from other similar programmes in the market.
To address these challenges, we have focused our marketing efforts on the corporate wellness segments and have formed strategic alliances and partnerships with other organisations in the healthcare industry. Additionally, we have worked to ensure that clients who do sign up with us receive top notch care and attention, so that they go away with a positive experience and an appreciation of the full benefits of our programmes.
We are confident that as we work towards officially launching our offering and broadening our marketing efforts to new segments in the year ahead, we will attract an increasing number of clients.
IT & Data Analyst
It has been a tough year for our businesses in IT and data analytics. Macro Lynx Sdn Bhd (“Macro Lynx”) has seen increased margin pressure as a result of ongoing broadband price wars and rising costs. Additionally, with a slowdown in the economy, occupancies of the buildings we cover have dropped and the number of new sign ups have also been slow.
To address these challenges, we worked hard to ensure that we continue to provide excellent service both in terms of customer service support and operationally, providing continuous network improvements and ensuring that our customers receive uninterrupted service. We also developed new products which allowed us to penetrate the SME segment and developed technology partnerships to support our pursuit of providing a wide range of connectivity options and robust business continuity solutions.
We believe that as we continue to enhance our service offerings, introduce new streams of business and penetrate new market segments, we will be able to grow our business sustainably.
This year, AFMS Solutions Sdn Bhd kicked off its operations following its establishment in 2015. We are in the business of providing consultancy services, focusing on the areas of building and mall management. Specifically, we aim to provide clients with innovative business solutions using big data analytics to improve people, processes and systems. As a new business, we worked to raise awareness around who we are and what we offer this year, seeking to educate potential clients about the benefits of our services.
The main challenges we faced were obtaining stakeholder buy in from potential clients and, once engaged, managing the availability of information needed to do our job.
Moving forward, as we continue to expand our business, we will be focusing on extending our marketing efforts to penetrate new markets, considering strategic partnerships to enable us to launch new products and enhancing the experience that clients have with us.
18@Medini, a mixed development in Iskandar Malaysia, Johor Bahru, remains under re-evaluation pending an improvement in market conditions.
In Thailand, we remain committed to developing a mixed-use project with our joint venture partners, the Immortal Group Co Ltd and are finalising the design and development concept for submission to the authorities. The project will sit on a 6-acre site fronting the Chao Phraya River.
We have submitted our plans for our mixed-use development project in London — Blackfriars and expect to obtain consent from the authorities this year. We are working towards launching the project at the end of 2017.