SINCE its listing in 2010, Sunway Real Estate Investment Trust (Sunway REIT) has been building a diverse portfolio in Malaysia, making it one of the largest diversified REIT in the country.
In a FocusM article on January 2015, the reopening of one of the largest shopping complexes in KL at the time was scheduled to happen on Apr 1, 2015 – the Sunway Putra Mall.
With Sunway REIT owning 35.71% of the mall, a total of RM307 mil of investment was poured into the renovation of the Sunway Putra Mall, making it into a three-in-one mixed development.
Following the refurbishment, the mall’s occupancy rate has been on an uptrend, increased from 60% prior refurbishment to 90.5% as of July 5, 2018, according to an article by The Edge.
The mall was even providing rental rebates to encourage both tenant retention and new occupancy.
The article also mentioned that 70% of Sunway REIT’s contributions came from its retail assets, while the remaining 20% from the hotels and the final 10% from offices, hospitals and industrial assets.
From a separate The Edge article on Feb 18, 2019, it was reported that Sunway REIT posted a net profit of RM139.5 mil in its first half ended June 30, 2019 (1H19). The article was based on a research report by TA Securities on Feb 15, 2019.
According to the research report, Sunway REIT’s 1H19 net property income (NPI) widened 0.2% to RM214.7% mil, which was in tandem with a 0.2% increase in revenue.
It was believed that the slightly better performance was mainly attributed to the higher performance of all segments, but partially offset by a weaker performance from the hotel segment.
Soon after on Apr 6, 2019, The Edge reported that Sunway REIT proposed a RM10 bil perpetual note programme to raise funds for future expansion of its portfolio of properties, which might cause worry for unitholders.
According to the article, most of the expansions by Sunway REIT going back to 2013 were funded by borrowings. Its gearing (borrowings as a percentage of total assets) rose from 31.1% in its financial year 2014 (FY14) to 38.6% in FY18.
However, based on the trust’s own calculations, ‘it has about RM400 mil to RM500 mil debt headroom before hitting the loan covenant limit of 45% gearing, which limited new acquisitions though traditional borrowings.
Despite the worry, Sunway REIT continued to get the approval from its shareholders to acquire three tracts of land that houses Sunway College and Sunway University for RM550 mil.
According to the news article also by The Edge, the acquisition was expected to improve the trust’s earnings and dividend per unit, where upon completion, the REIT’s portfolio size will increase from about RM7.3 bil (as of June 30, 2018) to RM7.8 bil.
“Notably, the acquisition will be funded by Sunway REIT’s existing debt programmes which include a 35-year RM10 billion unrated bond programme and a seven-year RM3 billion commercial paper programme, which had a combined amount available for use of approximately RM300 million as at end of February,” the Apr 9, 2019 report said.
“A portion of the funding will be from its future financing facilities, including a RM10 billion perpetual note (perps) programme which has drawn some contrasting opinions from research houses. The first issuance of the perps programme is expected to be sometime in the second quarter of this year,” it added.
Things might not have gone as planned since The Star reported that Sunway REIT’s 3Q19 (ended March 31, 2019) profits took a dip to RM68.9 mil from its previous RM70.4 mil, which was mainly dragged down by income tax expenses.
Despite that, the quarter’s revenue increased 7.1% year-on-year (y-o-y) to RM151.5 mil, which was primarily driven by a stronger financial performance form the retail and office segments and further boosted by a higher income contribution form Sunway Clio Property.
By Aug 1, 2019, the Sunway Pyramid Mall ended up contributing about 50% of the trust’s total revenue and RHB Research Institute expected the injection of Sunway University to strengthen the stability of its earnings.
This was reported in an article by The Edge, that also mentioned the retail segment contributing over 76% of NPI during the first nine months of 2019, rising at 3% y-o-y.
By then, the occupancy rate for Sunway Putra Mall reached 97% compared to the 90.5% in 2018.
Come October, Sunway REIT was reported that it has targeted a property value of RM13 bil to Rm15 bil by its financial year 2025, believing that it will be achieved through deployment of multi-faceted strategies.
According to the New Straits Times article, the target includes capitalising on global mega trends to expand into emerging growth sub-sectors to diversify the asset portfolio and exploring opportunity-led acquisition, re-development, turnaround and divestment.
By June 2020, Sunway REIT added The Pinnacle Sunway to its property portfolio for RM450 mil, with expectations that the REIT’s property value will rise to RM8.5 bil upon completion of the acquisition.
From an article by The Edge, Sunway REIT has plans to raise up to RM710 mil through private placement to fund the acquisition of The Pinnacle Sunway (RM405 mil) and the expansion of Sunway Carnival Mall (RM295.3 mil).
Starting August, Sunway REIT started dipping when its net profit for the year ended June 30, 2020 (FY20) declined 46.11% to RM208.21 mil compared to last year’s RM386.37 mil, which was mainly due to rental support to assist tenants as well as lower carpark income affected by restrictions and loss of business during the lockdown period.
Its FY20 revenue eased 4.03% to RM556.88 mil from RM580.30 mil in 2019 due to lower contribution from the hotel and retail segments.
For its fourth quarter, Sunway REIT suffered a massive net loss of RM13.48 mil from the previous year’s RM178.01 mil and revenue decreased 27.91% to RM104.93 from RM145.56 mil.
According to Jeffrey Ng, the company had implemented prudent cost management and cash conservation initiatives as preemptive measures to ensure sufficient flexibility in its liquidity management.
“As part of the cash conservation initiative, we are in the process of establishing a Distribution Reinvestment Scheme (DRS) to provide the additional flexibility to unitholders to receive future income distribution in cash, units or a combination of both,” he said in a statement on Aug 3, 2020.
Despite facing a volatile road ahead, Ng remains positive that the company will be able to make it through this tough time.
According to an article by The Edge, Sunway REIT ‘accelerated into segments to give it a more consistent revenue and income, rather than be overly reliant on its core assets with its cyclical nature’.
The article pointed out that the target is for 25% of the trust’s assets to be made up of other asset segments and services as well as education, healthcare, e-commerce and data centres, which currently account for only 12.5% of its total investment assets.
“I think, for the first time in the private sector, the engine literally stopped. So, what are you going to do now that things are starting to open up? You need to warm up the engine,” said Ng.
“We are trying to look at sunrise assets, such as industrial and other services, versus our current cyclical assets,” he added, as the article pointed out that Ng has begun looking ahead to when the economy recovers.
As of 2.19pm today, Sunway REIT’s share price declined 0.62% to RM1.60 with a market capitalisation of RM4.71 bil. – Sept 24, 2020
