SunREIT adds RM91.5 mil Shah Alam property into portfolio

KUALA LUMPUR (Jan 12): Sunway Real Estate Investment Trust (SunREIT) is buying a 15.46-acre (6.25ha) piece of land and the buildings erected on it in Shah Alam for RM91.5 million.

In a filing with Bursa Malaysia, SunREIT said it has entered into a conditional sale and purchase agreement with Champion Edge Sdn Bhd for the acquisition. The 99-year leasehold real estate, with a land area of 62,587.34 sq m, has a two-storey office with an annexed single-storey factory with a mezzanine floor; a three-storey office together with an annexed single-storey warehouse; an integral two-storey office with a two-storey factory-cum warehouse with an adjoining mechanical and electrical building; as well as other ancillary buildings.

SunREIT said the acquisition will be fully funded through its existing debt programme. It said the property in the prime industrial hub of Shah Alam is predominantly occupied by established multinationals, logistics and manufacturing companies.

The property’s lease, according to the REIT, is structured on a triple-net-lease basis — where all costs and outgoings in relation to the property are borne by the lessee — through a novation of an existing lease agreement. “The lease has a remaining duration of approximately 18 years which shall expire on Dec 31, 2034,” it said.

This initial term will automatically be extended for a further term of five years on the same terms and conditions.

“The renewal term may also be extended to more than five years for a tenure not exceeding 15 years. Based on the initial year’s annual rental of RM5.6 million, this translates into an initial acquisition yield [based on net property income] of 6.12%,” it explained. Thereafter, SunREIT said the net property yield is expected to increase to 6.73% upon the next rental review in 2019.

Upon the acquisition’s completion, SunREIT’s property value will rise 1.4% to RM6.52 billion, from RM6.43 billion as at June 30, 2016. SunREIT said the acquisition is part of its diversification strategy to strengthen income stability.

“In 2015, SunREIT has expanded its investment strategy to invest in long tenure, stable income producing assets such as industrial properties, logistics warehouses, data centres, among others. These assets shall not exceed 15% of [the] total asset value. SunREIT will remain focused on retail within a diversified asset portfolio spanning key high growth states in Malaysia,” it said.

Sunway REIT Management Sdn Bhd chief executive officer Datuk Jeffrey Ng said in the prevailing challenging operating environment, the investment in this property offers a stable income stream regardless of economic and market conditions. “The proposed acquisition is backed by a long lease and tenanted by a reputable tenant, hence [it’s] able to offer SunREIT a resilient rental income stream and contribute positively to its earnings and distributable income,” he said.

“SunREIT’s [number of] asset[s] will increase to 15 upon the completion of the proposed acquisition and reinforces its position as the second-largest REIT in Malaysia with a property value of RM6.52 billion. We are on track to meet our target of RM7 billion by financial year ending June 30, 2017,” he added.

This article first appeared in The Edge Financial Daily, on Jan 12, 2017. Subscribe to The Edge Financial Daily here.