Sime Darby Property not ruling out REIT along transformation path

KUALA LUMPUR (Feb 25): Sime Darby Property Bhd said it does not rule out the possibility of establishing a real estate investment trust (REIT) “down the road” ahead as part of the group's transformation journey from a pure-play property developer into a real estate company.

This is after, among others, the creation of an industrial development fund (IDF), which will be part of the investment and asset manager business under Sime Darby Property’s SHIFT 25 business model.

“At the moment, we are setting up our IDF. That will be the first thing that we focus on. What needs to happen is that we need to operationalise and translate this with projects."

“We want to ensure we have a credible and good performing first fund,” Sime Darby Property group managing director Datuk Azmir Merican said during a virtual media briefing on Friday (Feb 25).

“But the idea of being an investment and asset manager obviously includes the fact that we can create not just the idea of an IDF but a market for funds, including a REIT if we think it makes sense.

“That’s all still a bit too early for us to talk about it today but the idea is that we need this income diversification to earn money as an asset manager but to also look at the property or real estate sector and be an investor and take advantage of assets and through investment and divestment of assets, and of course to have a long-term recurring income,” Azmir added.

To recap, Sime Darby Property’s wholly-owned subsidiary Sime Darby Property (Capital Holdings) Pte Ltd on Sept 29 last year announced that it had formed a joint venture with LOGOS Property Group Ltd’s 100%-owned subsidiary LOGOS SE Asia Pte Ltd under an IDF collaboration that aims to initially raise US$200 million (about RM850 million) in seed money from accredited and institutional investors to finance the planned development of industrial property in Klang, Selangor.

Sime Darby Property said the IDF in partnership with LOGOS Property is set to make its maiden contribution in the second half of the financial year ending Dec 31, 2022 (FY22). 

Meanwhile, Sime Darby Property said it expects to see margin compression in FY22 due to rising raw material prices.

Its chief operating officer for integrated development Datuk Mohd Idris Abdullah said among the mitigation efforts include looking at design and alternative materials that can give better results in terms of cost management for all of the group’s products. 

“We are looking at speeding up constructions and different designs on how to overcome this. It is a challenge to us but at least we know upfront that material prices are volatile. 

“We are working on the constraints and we are working with the design engineers and also the contractors to see how best we can do it efficiently to ensure that we are within our design-to-cost threshold. That will ensure we do not compromise our margins,” he said. 

On the outlook for the local property market in 2022, especially in light of the discontinuation of the Home Ownership Campaign (HOC), Azmir, meanwhile, stated that he is overall positive on the year and believes Sime Darby Propety is going to have a good year in FY22 in terms of sales.  

“The RM2.6 billion sales target and the RM2.8 billion gross development value of launches mean we are positive. 

“What we need to look out for is whether in the first half or especially in the first quarter — because the HOC has ended — whether the buyers will want to wait and see for a little longer to see how Omicron can impact the market. 

“But the fact that we are not having a [Covid-19] lockdown and the government has been dealing with it rather well gives us confidence that it should not be too disruptive,” he said.

Azmir added the HOC had definitely helped not only Sime Darby Property alone but also all property developers as well as consumers who had benefited from it. 

“It saved us some money in a year where things were a bit tight. As a property developer, we have to find a way to get around this. We do hope that there is another HOC but we cannot depend on it. As a business, we have our own targets and we need to find ways to achieve them. We are still optimistic that we can achieve our targets,” he said.

On Thursday, Sime Darby Property reported a full-year net profit of RM136.9 million for FY21, from a net loss of RM501.57 million a year earlier, after a fourth-quarter turnaround which saw the property developer reporting a net profit of RM72.19 million, compared to a net loss of RM56.64 million a year earlier, upon resumption of site progress for the group’s property development segment as Covid-19 pandemic-driven movement restrictions eased.

At the noon break on Friday, Sime Darby Property's share price had dropped 1.54% or one sen to 64 sen, bringing it a market capitalisation of RM4.42 billion.

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