8 things I learned from the 2023 Sunway REIT AGM

Listed in 2010 on Bursa Malaysia, Sunway REIT is one of the largest diversified REITs in the country. It owns 20 assets in Peninsular Malaysia across the retail, hotel, office, and industrial sectors. Most of them are in the Klang Valley including the flagship Sunway Pyramid Mall.

In line with the REIT’s TRANSCEND 2027 strategy, Sunway REIT is committed to acquiring additional resilient assets in the services, industrial, and other sectors. Furthermore, they will actively pursue asset enhancement initiatives aimed at increasing the overall value of their assets. Sunway REIT’s current asset value stands at RM9.1 billion, and they aspire to elevate it to a range of RM14 million to RM15 million by 2027. Here are eight things I learned from the 2023 Sunway REIT AGM.

1. Revenue decreased 3.6% year-on-year to RM651.4 million in 2022 as the previous financial period comprised 18 months from 1 July 2020 to 31 December 2021. On an annualised basis, revenue would have increased 44.6% year-on-year in 2022 instead. The better results in 2022 was due to recovery of the retail and the hotel segments as well as the positive rental reversions from the services and industrial & other segments.

Source: Sunway REIT

Distribution per unit (DPU) increased from 6.10 sen in 2021 to 9.22 sen in 2022. DPU in 2022 is still 3.9% below the pre-pandemic figure in 2019 as the hotel segment has not fully recovered. Notably, the retail segment contributed to about two-thirds of the REIT’s revenue in 2022.

DPU9.57 sen9.59 sen7.33 sen6.10 sen9.22 sen
Source: Sunway REIT. *Change of financial year end from 30 June to 31 Dec

2. As Malaysia transitioned to an endemic phase, the REIT’s retail segment experienced a significant rebound, nearing pre-pandemic levels. In 2022, retail revenue soared because of the reversal of rental rebates and doubtful debt provisions as tenant sales improved. Sunway REIT’s overall retail occupancy remained stable at 96% compared to the industry average of 82.6%, 81.1%,  and 72%  in Selangor, Kuala Lumpur, and Penang respectively. The expansion of Sunway Carnival Mall in Penang was also completed and opened to the public in 2022.

Source: Sunway REIT. *Calendar year 31 Dec (1 January – 31 December 2021)

3. A unitholder highlighted that Sunway Putra Mall is less crowded and receives less footfall compared to Sunway Pyramid Mall. CEO Dato’ Jeffrey Ng Tiong Lip explained that Sunway Putra Mall is one-third the size of Sunway Pyramid mall. The former’s performance is encouraging as its tenant retail sales per square foot improved approximately 10% in 2022 compared to pre-pandemic levels.

4. The hotel segment saw a notable improvement in occupancy, rising from 32% in 2021 to 54% in 2022. However, it still fell short of the pre-pandemic level of 69%. With the phased reopening of Sunway Resort Hotel, the hotel segment is expected to deliver stronger results compared to 2019, positioning it for a favorable performance.

5. The services and industrial & other segments are operating under stable triple-net master leases, with regular rental reversions. In 2022, there was a significant increase in net property income (NPI) from the services segment compared to 2019. This boost can be attributed to the full-year contribution from the Sunway University & College campus, which was acquired in 2019.

6. Despite the growing trend of hybrid work models adopted by some corporations, Sunway REIT’s office segment maintained a steady occupancy rate of 83%. This stability can be attributed to the successful lease renewals by the REIT’s office tenants. The office segment recorded positive rental reversions, leading to notable growth in NPI compared to 2019. This surge can be attributed to the acquisition of Sunway Pinnacle in November 2020, which made a significant contribution to the segment’s performance in 2022.

7. Some unitholders were not too happy about the low occupancy rate of 27% at Sunway Tower (office). Ng explained that Sunway Tower accounted for only 1.3% of the REIT’s total asset value in 2022. Efforts have been made to boost its occupancy including an invitation to Sunway XFarms, Sunway Group’s agricultural company to set up its indoor vertical farm in the building (which could potentially include its upstream and downstream businesses to set up operations there in the future). In fact, the office tower’s occupancy rate improved from 27% in 2022 to 34% in 1Q2023 and is expected to further increase to 43% in 2Q2023.

8. As part of the REIT’s asset recycling strategy, Sunway REIT will be disposing of Sunway Medical Centre (Tower A & B) at RM430 million to an indirect subsidiary (also lessee) of its sponsor Sunway Berhad with a disposal gain of RM110 million. The proposed disposal yield stands at 6.1%. The management explained to a unitholder that the proceeds will be recycled into yield-accretive acquisitions of six hypermarkets with an overall acquisition yield of 8.1%. The REIT’s property yield stood at 5.4% in 2022.

The six hypermarkets will be acquired from a wholly owned subsidiary of the Employees Provident Fund at RM520 million. The assets are located across the Klang Valley and Johor and are supported by established population catchments. The DPU-accretive acquisition represents the REIT’s maiden foray into southern Peninsular Malaysia. The REIT’s DPU is expected to increase from 9.22 sen in 2022 to 9.75 sen post-acquisition in 2024.

A unitholder was concerned that the tenant of all these six hypermarkets (under ongoing triple-net lease arrangements), namely Giant, was not doing well. Although Giant ceased full operations in one these six hypermarkets, the REIT is engaging with Giant’s new shareholder to return to this vacated mall. There are also plans to uplift these approximately 20-year-old assets. Further, the REIT aims to acquire an industrial asset in Penang in 2023.

The fifth perspective

Sunway REIT’s retail and hotel segments are expected to fully recover over the next two years. 2023 looks set to be a good year for unitholders as domestic and international tourists gradually return and demand for conferences and activities increase. The REIT remains a solid dividend stock for local investors who wish to have exposure in a wide variety of quality assets across different parts of Malaysia.

Liked our analysis of this AGM? Click here to view a complete list of AGMs we’ve attended »

Shak Chee Hoi

Chee Hoi is an investor and research analyst at The Fifth Person. He was previously involved in wildlife conservation work with a non-governmental organisation as well as sustainability consultancy work. He personally believes in impacting society and the environment for the greater good.

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