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KUALA LUMPUR: Sunway Real Estate Investment Trust (Sunway REIT) is looking to expand its asset size through acquisitions of third party properties, its manager Sunway REIT Management Sdn Bhd chief executive Datuk Jeffrey Ng said.
He reckons that the future growth of the largest Malaysia REIT in terms of asset size trust would be geared towards acquisitions, and it is currently on the lookout for suitable asset acquisitions to grow the trust, he said in a media briefing on Friday, Jan 28. He however, declined to reveal further details.
"We have a reference point that is for the later enlarged Sunway REIT's portfolio to be made up of at least 60% retail assets," he added.
Any deal that takes place will be the trust's first acquisition from a third party since its listing on the Main Market of Bursa Malaysia Securities Bhd on July 8 last year.
According to a research report by Maybank Investment Bank Bhd on Thursday, it said Sunway REIT could be in talks with a few third parties for potential shopping mall acquisitions which would later further strengthen its foothold in the domestic retail rental space.
"Retail properties currently contribute 67% to the trust's net property income, versus office of 10% and hospitality of 23%," it added.
There are currently three retail assets, three hotel assets and two office assets under Sunway REIT's portfolio.
The REIT manager also does not rule out the possibility of adding the Sunway Group's assets in the pipeline into the REIT when they are completed.
There will be at least three pipeline assets in the next four years including The Pinnacle corporate office tower and Sunway Pyramid expansion Phase 3 at the Sunway Integrated Resort City (SIRC) in Selangor, as well as Sunway Velocity shopping mall in Cheras. These are being developed by the group's property development arm Sunway City Bhd.
Ng said it is too early to go into negotiations to buy these assets. The Pinnacle corporate office tower is located adjacent to Sunway Group's headquarters Menara Sunway in Bandar Sunway. Offering 560,000 sq ft of net floor area over 25 floors excluding the car park, this tower is scheduled to be launched this year and completed by December 2013.
The office tower is expected to be an MSC status office building which meets both Malaysia's Green Building Index and Singapore's Building and Construction Authority's Green Mark Gold certification standards.
Sunway Velocity is a mixed commercial development project underway in Cheras which comprises office suites, office towers, serviced apartments, shoplots and a shopping mall. The RM1.5 billion project on a 22-acre freehold parcel is expected to be completed by 2015. The shopping mall will have a total net floor area of more than 800,000 sq ft.
By the time these projects are completed, the trust is also expected to see significant income growth upon the renewal of tenancies at the existing 1.1-million sq ft Sunway Pyramid shopping mall by then.
Last year, the Sunway Pyramid management renewed tenancy agreements with 60% of the mall's tenants and increased it by 50 sen psf or 17.1%, on the net rental to RM9.40 for the next three years. The rental reversion for its entire portfolio was 16%.
Ng said the vibrancy and the business synergy within SIRC as a key driver to the double digit rental growth, The double-digit rental growth translates into an additional revenue of RM330,000 per month, or RM3.96 million a year, from one mall alone. This increment of rental had helped the REIT exceed its profit forecast by 2.9%, or RM1.33 million.
In the second quarter ended Dec 31, 2010 (2QFY2011), its net profit stood at RM46.94 million, a 15.7% jump from RM40.56 million the previous quarter. The forecast provided in its prospectus on June 15 last year was RM45.61 million.
Its revenue also increased 17.8% to RM85.33 million in 2QFY2011, from RM72.45 million in 1QFY2011. The distribution per unit to-date is 3.26 sen per unit.
A research report by J P Morgan on Jan 26 said the breakdown of net property income for the trust's 1HFY11 showed Sunway Pyramid had contributed 60%, followed by Sunway Resort Hotel and Pyramid Hotel 22%, with the remaining 18% from office assets (Menara Sunway and Sunway Towers), the hotel in Seberang Jaya, as well as the Sunway Carnival mall in Penang and the hypermarket in Ipoh.
"Rental renewals during the 1HFY11 period saw total increases of 17% for 3 years, or averaging at 5.7% per annum. Distribution per unit growth going forward is forecast at 5% per annum over FY2011 to FY2013 without factoring in any upside prospects from asset enhancement initiatives," it noted.
Sunway REIT has an asset value of RM3.7 billion, as appraised on Feb 3 last year, and market capitalisation of RM2.76 billion as at Dec 31 last year at RM1.03 per share. Of its 2.68 billion shares, some 58% is held by institutional funds like Employees Provident Fund (EPF), Permodalan Nasional Bhd (PNB) and Great Eastern.
It has the largest retail assets in terms of net lettable area among Malaysian REITs, at 2.18 million sq ft, followed by Capitamall Malaysia Trust at 1.88 million sq ft.
On market talk that the REIT market will be sluggish this year, Ng disagreed and said the outlook is good on the back of better macro-economic factors, as well as the possibility of several REIT listings planned this year that would draw the attention of investors to Malaysia REITs.
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