Sime Darby Property’s recurring-income push gains traction

PETALING JAYA (Aug 26): Sime Darby Property Bhd’s push to build a larger recurring-income business is beginning to show in its results, with the developer reporting higher contributions from data centres, retail and logistics assets alongside its core property development business.

The shift has also underpinned the group’s new dividend policy, which targets a payout ratio of 40% to 60% of consolidated profit attributable to owners of the company (PATAMI), excluding extraordinary items.

In an Aug 24 Bursa Malaysia filing, Sime Darby Property said the policy reflects the group’s shift towards a more balanced earnings profile, with a growing contribution from recurring income.

The payout is subject to factors including the availability of distributable reserves, projected capital expenditure and investment plans, working capital requirements and existing and future debt obligations.

Investors responded positively following the release of the group’s second-quarter results, with Sime Darby Property shares rising as high as RM1.41 on Wednesday (Aug 26), 6.8% above their RM1.32 close on Aug 24, before ending the session at RM1.36.

The market response comes as Sime Darby Property’s investment and asset management (IAM) business becomes a more visible contributor to the group, although its latest results also show that the transition towards recurring income remains a work in progress.

For the first half ended June 30, 2026 (1HFY2026), IAM revenue rose 59% year-on-year to RM137.8 million. Sime Darby Property attributed the performance to data centre lease income, retail portfolio performance, industrial asset contributions and an improved share of results from joint ventures.

Property development nevertheless remained the group’s principal earnings engine, contributing RM1.8 billion in revenue and RM457.3 million in profit before tax (PBT). Based on the disclosed segment revenues, property development accounted for about 93% of revenue generated by the two businesses.

Under its SHIFT32 strategy, Sime Darby Property is seeking to transition from a predominantly property development business into a diversified real estate group with a larger recurring-income component.

Data centres, logistics expand income base

One visible addition to Sime Darby Property’s recurring-income base is its first build-to-lease data centre, DC1, at Elmina Business Park.

The company said the data centre, which was completed in March, contributed lease income to the IAM segment during the first half.

BIMB Securities estimated DC1’s lease income at about RM27 million in 2QFY2026, according to The Edge’s Wednesday (Aug 26) report. Sime Darby Property has not separately disclosed the figure.

The group is also expanding its logistics platform through SDPLOG, its joint venture with ESR.

Sime Darby Property said Metrohub 1 and 2 at E-Metro Logistics Park in Bandar Bukit Raja are fully occupied, while the 1.38 million sq ft Metrohub 4 was completed in July and has secured a pre-commitment from MIXUE for 13.4% of its net lettable area.

Construction has also begun on Metrohub 3, comprising about 840,000 sq ft across two warehouse blocks, with completion targeted for the third quarter of 2027.

The group said its assets under management stood at about RM5 billion as at July.

The figure provides an indication of the scale of the expanding platform, although it does not represent RM5 billion of completed and fully leased income-producing properties.

Not all profit growth is recurring

While IAM is becoming more prominent, Sime Darby Property’s first-half results also contain items that should be distinguished from recurring operating income.

IAM recorded PBT of RM179.2 million against revenue of RM137.8 million.

Sime Darby Property said the segment benefited from an improved share of results from joint ventures following the reversal of provisions relating to the disposal of Sime Darby Business Centre in Singapore.

As the share of results from joint ventures is recognised separately from segment revenue, IAM’s PBT should not be read as representing a pure recurring operating margin.

Separately, the company said its property development segment benefited from RM120.4 million in fair-value gains, mainly from the build-to-lease data centre at Elmina Business Park and The Cubiz Collection semi-detached factories in the City of Elmina.

The fair-value gains are valuation movements rather than recurring rental income, meaning the sharp improvement in headline profit was not driven solely by the expansion of Sime Darby Property’s recurring-income base.

For 1HFY2026, group revenue rose to RM1.96 billion, while PBT increased 59.5% to RM635.56 million. PATAMI jumped 83.6% to RM480.82 million.

As at June 30, Sime Darby Property reported positive operating cash flow, net gearing of 35.5% and unbilled sales of RM3.8 billion.

Dividend reset reflects changing earnings mix

Sime Darby Property said its new dividend policy seeks to provide stable and sustainable dividends while maintaining an efficient capital structure and adequate reserves for capital requirements and future growth.

The company also declared an interim dividend of 1.7 sen per share for 2QFY2026, up 13% year-on-year, involving a total payout of RM115.6 million.

In its results release, Sime Darby Property described the 40% to 60% policy as an enhancement from its previous dividend payout framework of 20% of PATAMI.

Group managing director and CEO Datuk Seri Azmir Merican said the policy reflects confidence in the group’s ability to generate sustainable earnings and operating cash flows, particularly as recurring income becomes a larger contributor to overall profitability under SHIFT32.

Analysts have also focused on the potential implications of the changing earnings mix.

CGS International said the group’s growing recurring income and higher dividend policy signal management’s confidence in cash-flow generation and could support a valuation re-rating, according to The Edge’s report.

BIMB Securities, meanwhile, said second-half earnings should be supported by stronger property billings, a back-loaded launch pipeline and a full-period contribution from DC1, according to the same report.

The latter also highlights the balance in Sime Darby Property’s changing earnings mix. Recurring income is becoming more meaningful, but property development remains the principal earnings engine.

The group has RM3.8 billion of unbilled sales and is planning about RM4.7 billion of launches in FY2026, while management expects continued expansion of its recurring-income base.

For now, the strategy is adding greater earnings visibility rather than replacing Sime Darby Property’s development-led model. How quickly its data centre, retail and logistics assets translate into repeatable rental and fee income will help determine whether the higher payout policy — and the valuation re-rating anticipated by some analysts — can be sustained.

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