KUALA LUMPUR: Sunway Real Estate Investment Trust (Sunway REIT) has reduced its average cost of debt to 3.73% as at Dec 31, 2012, from 4.65% as at June 30, 2011, making it the lowest among all REITs in Malaysia.
Sunway REIT Management Sdn Bhd, the manager of the REIT, said in a statement the lower cost of debt is the result of the capital management initiatives it had undertaken during its financial year ended June 30, 2012 (FY12).
It said the efforts are expected to generate interest savings of approximately RM10 million for FY13, allowing its unit holders to receive more distributable income.
It said it has adopted an interest rate management strategy and prudent gearing level targets since the initiative was implemented in FY12.
The management has outlined its strategy by focusing on key areas, which include diversifying sources of debt funding, reducing refinancing risk, and maintaining a reasonable level of loan interest service capability.
Sunway REIT has successfully refinanced its debt into a US$100 million (RM302 million) three-year fixed rate term loan facility, a seven-year commercial paper (CP) programme of up to RM1.6 billion in nominal value, and a 15-year unrated medium-term note (MTN) programme of up to RM1.0 billion. A total of RM600 million of the MTN has been issued so far.
As at March 2013, Sunway REIT’s fixed rate versus floating rate debt ratio stood at 56:44. The floating rate portion of the debt allows the management to exploit the low interest rate environment by converting it into fixed rate. The conversion can be executed either through interest rate swaps or MTNs.
“The management plans to implement this strategy on a progressive basis until the current interest rate trend reverses,” said Sunway REIT.
The successful capital management initiatives are reflected in the current positive investor sentiment for Sunway REIT, as its unit prices have gained 5.8% since the beginning of the year.
The REIT closed at an all-time high of RM1.64 last Friday, with a historical income yield of about 4.6% based on its FY12 income distribution of 7.5 sen per unit and an estimated 4.82% yield for FY13.
Sunway REIT has a market capitalisation of RM4.78 billion. Its portfolio of hotels and shopping malls include the Sunway Pyramid shopping mall, Sunway Resort Hotel & Spa, and the Pyramid Tower Hotel, among many others.
This article first appeared in The Edge Financial Daily, on May 20, 2013.
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