The Edge, 20 October 2014 - Building on its pedigree
Tropicana Corp Bhd has undoubtedly had a good run this year, winning award after award lauding its prowess as a real estate player. For its successful transformation from a mid-tier developer into one of the biggest in the industry, Tropicana in August earned The Edge Billion Ringgit Club Award 2014 for recording the highest profit growth under the Property and REIT category.
Now, it can add The Edge Malaysia Notable Achievement Award and the distinction of being ranked among the Top 10 developers in The Edge Malaysia Top Property Developers Awards 2014 to its list of accolades. The former recognises property developers that have significantly raised their profile as a leading developer in the country through their projects,branding and overall presence in the industry.Tropicana, previously known as Dijaya Corp, has achieved all of the above on the back of a property boom and its founder Tan Sri DannyTan injecting RMi.l billion of his own assets into the listed company-With more land in Penang, Kuala Lumpur and Johor, the group rode the property upcycle, doubling its profit every year from FY2010 to FY2013 ended Dec 31 in addition to the asset injection, the group also changed its name to capitalise on the market's familiarity with its flagship Tropicana Golf & Country Resort (TGCR) in Petaling Jaya.
However, this is not merely to celebrate its past success,but also to guide its future moves. According to group CEO Datuk Yau Kok Seng, Tropicana's strategy of drawing buyers by including wellplanned and well-executed landmarks in its developments is ingrained into its DNA, "when we first launched TGCR in 1994, we did not sell bungalow Many among our launches in GKL are landed homes, So the peiception that most of our land is in Iskandar Malaysia and that we are merely a developer of ligh-end condominiums is not true, - Yau and around the golf course. But after much demand from the market, we relented, but on the condition that buyers were also members of the golf course!" he laughs. The bungalow land was sold at RM35 psf then and now commandy RM500 psf on the secondary market, says Yau.He attributes this appreciation to the championship 27-hole golf course currently owned and maintained byTropicana that underpins the entire developmentThe pedigree of the developer is inherent in its new launches,namely the 863-acre Tropicana Aman in Kota Kemuning, 88-acre Tropicana Metropark in Subang Jaya and l4-l-acre integrated development Tropicana Gardens in Kota Damansara.
Each of them has unique features that not only drive sales but in some cases also generate recurring income for the group. As one of the most popular features of developments these days is well-designed parks with lakes Tropicana Metropark and Tropicana Aman will each feature a lake in addition to a clubhouse and other facilities, says group managing director Datuk Edmund Kong. "Most developers will push for the maximum number of units, but we looked instead at how we can add value to buyers. So, we concentrated on the lake as the focal point. We were asked, *why waste such prime land?' But we knew this would enhance the value of our properties. Many people cannot see it now, but when Tropicana Metropark is completed, property prices will appreciate many fold, just like in Desa ParkCity says Kong, who had previously worked for Perdana Parkcity Sdn Bhd, tlie developer of Desa Parkcity. Tropicana is also splurging on more open spaces in its townships with wider walkways 8ft to lOft across compared with the typical 3ft to 5ft ¡ª to encourage residents to walk and cycle, boosting the overall percentage of green and open spaces to 15% to 16%. Tropicana's developments feature multi-tiered security as well. "This is especially true in Iskandar because Singaporeans who buy homes there are very concerned about security/' says Yau,One such feature that must be planned from the outset is a single entry and exit point for each phase, which enables better control of the flow of traffic into and out of the schemes, he adds.
Within the group's schemes, roads are planned to be navigated as easily as possible, "We don't want to build a maze,like in the older schemes. So we plan our roads as well as possible to accommodate traffic and keep it secure at the same time," Yau says. Tropicana also invests in improving accessibility to its projects, he adds. "To any homebuyer^access and connectivity are very important. If you notice, most of our projects are very accessible. For instance,Tropicana Metropark will be connected directly to the Federal Highway through a ramp. At Tropicana Garden, we are building direct connections above and below ground to the upcoming Sunvray Kota Damansara MKT station. "So, this is how we set benchmark prices ¡ª through accessibility and facilities. But at the same time, we are mindful of the absolute price so while we know our brand carries a premium, we also design units to not be too big, like 800 sq ft," he explains. While designing to accommodate absolute value, Tropicana also configures each unit to meet the needs of buyers"Our homes are built with the best possible design so we discourage extensions. That is why all our rooms are designed to fit at least a queensized bed," says Kong. Despite its premium standing, Tropicana grapples with cost issues like the rest of the industry. To deal with this,it takes a two-pronged approach ¡ª by "engineering value" and growing its margins, says Yau. "Kong and his team are leading the value-engineering efforts.
This covers areas such as the mechanical An artist's impression of Tropicana Avenue in Petaiing Jaya An artist's Impression of Tropicana Danga Bay in Iskandar Malaysia An artist s impression of Tropicana 218 Macalister in Penang and engineering(M&E)components, project plarming and execution-We try not to spend too much money on the parts that you cannot see. So we are stringent in checking the size of steel bars [and measure other materials]... in fact, that is the first thing we look at when we design a product-We make sure we do not overspend," he saysMaking its M&E more efficient is especially important in projects such as hotels and malls as they are a major cost component. "To make the M&E more efficient, we brought in someone who is very experienced in designing M&E to make sure that it is more efficient- In construction, cost savings start from design, so we ask our contractors to give us alternative designs. We are very open to ideas on how to save money," Yau says. Sometimes,designs may be revised at d ifferent stages to be more cost-efficient. "To be fair to our consultants, sometimes they take a conservative position,so they *overdesign' to play safe- However, we ask ourselves, 'Is there a need for all this?' and we realise that there will be a lot of savings if we redesign the plans-So, this is how we improve our margins." Quality control and cleanliness are also vital, adds Yau- ''Everything is about quality and cleanliness, I am very fussy about this. As with manufacturing,a messy site does not motivate workers to do a good job, so we start with a clean site. "Our pledge to quality control is on our boardroom wall. We have a bi-monthly meeting to share ideas on quality with people on site and discuss issues, such as mitigating An artist's impression of Penang WorldClty which Tropicana is jointly developing with Ivory Properties complaints from buyers. We need to address these otherv^rise we will have a laundry list of problems after each handover. We want them to be happy with their product.
Besides managing the cost of its projects, Tropicana is also optimising the cost of its own operations, says Yau. "We need to continue trimming overheads, so our (other] group man aging director Kok Kong chin and chief financial officer Choo Chee Beng work to identify areas where we can trim further Besides that, we have also benchmarked ourselves against II nkct leaders in variousareas,such ; J1 y, sales and marketing costs, iKni.Wealso compare our marwith the market's and make [\ t oniinendations to management," he adds. According to Kok, the industry's average pre-tax profit is 18%, gross profit margin 30% and profit after tax 14% to l5%,"Weare looking at these numbers very seriously. We hope to match them by 2015/' For the longer term, the group hopes to match the industry's leaders, says Yau. "l learnt from Tan Sri Quek Leng Chan during my stint in Hong Leong Industries Bhd [as group managing director] that when you benchmark yourself against the best, you find that there are many ways to be innovative. You will have to do things differently and in this case, there are other ways to boost margins besides raising the price, such as reducing cost." Tropicana also hopes to pare down its gearing to 0.3 times eventually and thus improve its debt-to-service ratio to between four and five times. One way to handle this is to sell raw land ''at a fair price", which will also allow it to cut down on holding cost. "A developer cannot avoid being driven by a resource, or landbank, strategy. So, we must have a good landbank and we pride ourselves on having good land in strategic locations, whose value we are able to unlock," Yau says.
The group's 1,888 acres are in Penang,Greater Kuala Lumpur (GKL) and Johor, with GKL accounting for 61% of the total.The GKL land is expected to generate a gross development value (GDV) of RM24-5 billion or almost half the total GDV of all its [and in Malaysia. "Many among our launches in GKL are landed homes. So the perception that most of our land is in Iskandar Malaysia and that we are merely a developer of high-end condominiums is not true,'' says Yau with a smile. Clearly,Tropicana's housekeeping efforts are paying off.