Posh property price-setter

Special Focus
Published November 10, 2006

THE CFO INTERVIEW
Posh property price-setter
SC Global's corporate finance director tells SIOW LI SEN why it goes for premium projects

WHENEVER SC Global Developments hits the headlines, it is usually about the posh projects undertaken by the mid-sized company founded and run by its high-profile chairman Simon Cheong. Lately, it's also about tycoon Oei Hong Leong having the foresight to buy a substantial chunk of the company last year.

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Mr Tsang: "A lot of people say SC Global products are expensive but a lot of people who have bought our projects have made money.'

Mr Oei's uncanny, some say Midas, touch in picking winners is once again evident with SC Global.

As David Tsang, SC Global executive director and director of corporate finance, puts it: 'I think they're quite happy. Since they've come into the company about a year ago, I think the shares have gone up about 80 per cent.'

'I think they've seen good appreciation of their investment,' said Mr Tsang in a recent interview with BT.

In July 2005, SC Global sold 19.18 million new shares at $1.23 a piece, or about 20 per cent of its issued share capital then, to three parties - Mr Oei's Chip Lian Investments, MarkWell Investment and Choo Yeow Ming. It raised $23.6 million.

Chip Lian Investments paid $11.8 million for an 8.3 per cent stake in SC Global. Mark Well Investment's stake is 4.6 per cent, and Mr Choo's is 3.7 per cent. Their stakes were subsequently diluted when SC Global did two more rounds of placements in December 2005 and September this year.

In December 2005, it sold 5.75 million new shares at $1.35 apiece to Mass Noble Ltd of the Yawson Investment group from Hong Kong, representing then 4.8 per cent of SC Global's enlarged share capital. In September 2006, SC Global sold 24 million new shares to US-based institutional investor Legg Mason at $1.95 per share, raising $46.8 million. This week, SC Global is trading around the $2.50 level.

Bigger projects

Since the last placement, the company has attracted more interest and it now has some 1,000 shareholders. So when is the next round of placements?

Attracting more investors is important but the company also has to take into account the dilution effect on current shareholders, said Mr Tsang.

'The shareholder base has grown; we now have retail and institutional shareholders on the register. The free float has widened, although the trading volume is relatively low compared with the big companies; it's a lot better than what it used to be.'

'I think we used to trade, maybe, once a week. To issue equity to the market, you have to be careful, you have to protect the shareholders' value.'

'You don't want to just issue equity because it's quite expensive to issue equity,' he said.

In addition to dealing with more investors, Mr Tsang has his hands full with SC Global taking on much bigger projects that propel the company into the big league.

Earlier this year, it paid over $600 million for two en-bloc freehold sites - $382 million in Cairnhill and $266 million in Paterson Hill - a total of about 800,000 square feet of 'buildable' real estate.

Mr Tsang said the combined development cost is estimated at $600 million, which takes the value of two projects close to $1 billion. He estimated that they could sell for a whopping $1.5 billion. 'Quite valuable assets.'

How did he arrive at $1.5 billion?

'Depends on how you see high-end prices. But if you think it can sell for $2,000 per square foot, then multiply that by 800,000; it would easily top $1.5 billion,' he said.

SC Global's Boulevard Residence located in Cuscaden Walk is now selling for $2,300 psf, he said.

SC Global's strategy is not only to aim for high-end business but also to push prices to the next level. While bold, execution is done conservatively as property development uses a lot of capital.

'Our focus is high-end. It's got to be prime districts 9, 10 and 11,' he said. 'When we set up to do the business plan to do this, we're very fundamentally driven.'

SC Global is a small company and it has to first learn to crawl, and then walk, before running, he said. The company has to date done four projects - worth about $500 million - and through them has established a reputation for delivering upmarket homes.

Healthy prices

The company got into the development business in 2000. But in 2001, the property market took a dive because of 9/11, which was followed by the Bali bombing in 2002. Then, Sars struck in 2003. The markets only began to recover in 2004.

'You're looking where for four out of five years the market conditions had been quite tough,' said Mr Tsang.

'When sentiment is against you, for whatever reason, it will be hard to push the market, unless you're prepared to reduce prices. But that isn't the policy we take.

'We've always kind of held our prices. So even when we launched Boulevard Residence in 2003, which was during Sars, we still sold, probably about 30 per cent at that time.

'Our prices were pretty healthy - $1,500, $1,600 psf - where the market was closer to $1,100, we were selling at a premium,' he said. The plan was and is to sell enough units to cover the cost of construction. When Boulevard Residence was finished in 2005, the remaining units were released for sale.

'It's now going for $2,300 psf,' he said.

'A lot of people say SC Global products are expensive but a lot of people who have bought our projects have made money.'

As for its next two projects, Mr Tsang said they were targeted specifically for their large sizes.

'You really can differentiate your site; there're a lot of sites around Orchard of 40,000, 50,000 psf which are fine. But to be able to give people that sprawling ground, really lush landscape, resort-like feel and so convenient to Orchard Road, that gives you that premium,' he said.

'That's the next level for us. We always try to do something new in the market, raise the standard for what we call luxury living and having the larger land, more space, that definitely becomes more valuable,' he said. 'People who have money don't want to compromise. They want the space, larger apartments, the great location. And if you give them all that, they'll pay the premium.'

That includes paying attention to detail, he added.

For example, a lot of developments today do not provide enough wardrobes for storing women's handbags and shoes, he said. 'You can have a four-bedroom apartment, but if you don't have enough wardrobe, one of your bedrooms becomes your wardrobe,' he observed. 'So we look at these things and how can we provide for that.'