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Sunway REIT’s diversified attraction

KUALA LUMPUR: While many real estate investment trusts (REITs) in the country comprise single assets, Sunway REIT is different as it owns diversified assets, ranging from retail and office to hospitality and healthcare.

As the second largest REIT in Malaysia after the KLCC Stapled REIT, Sunway REIT believes that diversification of assets is what sets it apart from its competitors.

“We are a very diversified REIT, so we are not confined to fundamental investing rules like pure play trusts, which only target a specific subsector,” CEO Datuk Jeffrey Ng Tiong Lip said in an interview with The Edge Financial Daily last Thursday.

Sunway REIT assets presently comprise Menara Sunway, Sunway Tower and Sunway Putra Tower (office); Sunway Pyramid, Sunway Putra Mall, Sunway Carnival and SunCity Ipoh Hypermarket (retail); Sunway Resort Hotel & Spa, Pyramid Tower Hotel, Sunway Putra Hotel, Sunway Hotel Seberang Jaya (hospitality) and Sunway Medical Centre (healthcare).    

Sunway REIT, listed on Bursa Malaysia in July 2010, was a spin-off from Sunway City Bhd, one of the largest property developers in Malaysia then.

Ng said the market noticed the REIT sector at the time, with both Sunway REIT and CapitaMalls Malaysia Trust making their debut on Bursa within one week of each other.

“Before we came in, Malaysian REITs were not on the radar screen of the investing community. We had a fairly sizeable asset size, the public took notice and afterwards there was no looking back. The most notable thing about our listing in the context of REITs was our sheer size, along with the appeal of the Sunway brand,” he said.

Sunway REIT raised about RM1.5 billion in its IPO, owning eight operational assets at the time.

According to Ng, Sunway REIT has so far made one strategic acquisition a year, and is working hard to maintain this track record by scouring the market for new opportunities. In the meantime, the group is prioritising the enhancement of net property income (NPI) for its current assets.

“We are making refurbishments and several changes to some of the properties. At the end of the day, it is the NPI that our investors will get a share of.  However, growth by acquisition must complement our existing business. Our focus is on the quality of assets instead of quantity,” he said.

The ongoing development of Sunway Pinnacle, Sunway Pyramid 3 and Sunway Velocity, estimated to be worth up to RM3 billion, may come under Sunway REIT’s management in the future by way of acquisitions.

On Sunway REIT’s investment criteria, Ng said: “We are looking at synergistic potential and compatibility to our existing portfolio. Almost 80% of the total value of our assets is located in Bandar Sunway, where our sponsor is continuously developing the landbank with new projects.

“As the transport infrastructure improves around the township, the ease of mobility and connectivity between the properties will be a boon for the REIT. As a result, the [Sunway Pyramid] shopping mall will experience more foot traffic, coupled with more business to the connecting hotels.”  

Asked if a stapled structure might be considered the best way going forward, Ng dismisses the possibility for the moment.

“The REIT’s prospect for the next three to four years is very positive as it remains in a strong growth path. We are confident of our asset enhancement initiatives, capex plan and capital management strategy,” he said.

By diversifying the portfolio with the recent acquisition of Sunway Medical Centre, the REIT is able to achieve gains from different subsectors under its umbrella. Sixty per cent of Sunway REIT’s total portfolio is currently retail-focused.

Its latest acquisition, Sunway Medical Centre, was acquired in December 2012 and was leased to Sunway Medical Centre Bhd on a 10-year master lease agreement with an annual rental of RM19 million and a 3.5% rental reversion per annum.

The company believes that the rental structure of Sunway Medical Centre has justified its venture into owning healthcare assets.  “We structured the master lease in such a way that we have certainty in terms of income growth, irrespective of market conditions,” said Ng.


This article first appeared in The Edge Financial Daily, on May 27, 2013.

 

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