International Real Estate
Message from the Company President
The year 2010 was a significant crossroad for AG Holdings. During the past year, we refined our overall strategy to reflect the realities and opportunities in the international property markets.
In the United States, we intend to continue to build on the success of our recently-inaugurated project—the Seasons Marketplace at Landess Avenue Neighborhood Center in Milpitas, California. The Center has proven the marketing viability of the Asian community center concept and we look to build on the early success by adding more tenants and increasing patronage and traffic in the coming year.
Additionally, we assessed the remaining intrinsic values of three other US projects. The carrying values of these investments were reduced to a level that best reflects what can be realized from these projects. We aligned our sales and marketing efforts with current market conditions. Furthermore, we have also injected the necessary management and financial resources. These actions will enable us to realize the value that remains in these projects.
In Asia, AG Holdings took a significant step in reorienting its role to fully capitalize on the growth opportunities in the region. In a 2010 transaction, done in early 2011, we exchanged our ownership interests in the management company and general partnership of ARCH Capital for an increased investment stake in The Rohatyn Group (TRG). We believe that we will benefit from the combination of the scale and global investment expertise that TRG can contribute and the regional know-how of ARCH Capital. Moving forward, we are now among the largest investors in TRG funds and we will be working with TRG to realize significant value from these interests. We continue to be an anchor investor in ARCH Fund I and expect to realize attractive returns from the ongoing projects in China, Macau, Singapore, India, and Thailand.
As we have streamlined our portfolio and stabilized operations, we are ready to face the opportunities as well as the challenges in the global real estate markets.
DELFIN C. GONZALEZ, JR.
The year 2010 continued to be challenging for AG Holdings’ business in the U.S. with Asia providing a silver lining. In line with this, AG Holdings initiated efforts to rationalize its operations in the U.S. and Asia to better position itself from a cost and management perspective. Moving forward, AG Holdings is in a better position to continue managing its existing investments and capitalize on selected opportunities that may come its way.
ARCH Capital Management, our Asian regional property fund management business fully divested in 2010 the investment in Foshan, China—a 1,211-unit residential development in one of the more affluent cities in Guangdong province. Upon exit, the investment enjoyed a substantial return, achieved over an investment period of 16 months from closing. The exit occurred eight months ahead of plan.
Moving quickly to capitalize on opportunities, ARCH successfully closed its first investment in Singapore in 2010—an exclusive two-tower, 34-unit fully–developed, freehold condominium project in one of the most prestigious residential districts in the island nation. ARCH has moved quickly and as of the end of 2010, has already leased out more than half of the available units.
The Concordia venture in Macau continues to be well received and has sold 97% of the Phase 1 residential units that were launched in April 2010. The sales launch for Phase 2 is now being targeted for the first quarter in 2011. The ARCH projects in India and Thailand also continue to register consistent and steady sales and construction progress is on schedule.
Finally, in addition to the investment in Singapore, ARCH also committed to another investment in China, which will result in participation in two development projects in the provinces of Shenzen and Chengdu.
AG Holdings, through its U.S. subsidiary, successfully opened and inaugurated the Seasons Marketplace at Landess Avenue Neighborhood Center located in Milpitas, California in May 2010. Located near a large Filipino and other Asian communities in the Silicon Valley, Seasons has attracted locators that address its needs.
Its other investments however continued to experience the weakness in the U.S. real estate market. Its residential and retail projects continued to be affected by slow sales as a result of creditcontraction and high unemployment. Property values have also declined significantly since the launch of these projects. However,as more residential units have been launched, more sales have been booked in 2010. Leasing activity was also muted as theweak consumer spending continued to affect business prospects in the retail commercial space. As a result of these factors, AG Holdings booked further provisions on its U.S. investments to reflect the realizable values of these investments.
OUTLOOK FOR 2011
The year 2011 will continue to be challenging but with better opportunities in Asia. AG Holdings will seek to recover the value of its remaining U.S. investments as the property market enters the recovery phase. Modest improvements in the economy will help generate sales. In Asia, AG Holdings will be looking to continue to benefit from the growth story of the region. To this end, AG Holdings will look to capitalize on the most effective and strategic avenues available, through ARCH and other vehicles, to crystallize the value of its investments.