Sunway Real Estate Investment Trust (Sunway REIT) was listed in Bursa Malaysia in 2010, with a portfolio spread across Kuala Lumpur, Penang and Perak. As of 31 December 2023, Sunway REIT owns 19 assets, down from 20 following the sale of the Sunway Medical Centre buildings to Sunway’s healthcare division, bringing its total property value to RM9 billion.
Here are eight things I learned from the 2024 Sunway REIT annual general meeting:
1. Revenue increased by 10% to RM719 million (FY2022: RM651 million) in FY2023. Net property income (NPI) was also up to RM527 million, 5% higher than FY2022 (RM500 million). Property yield increased from 5.4% to 5.7% as well. Its Retail segment remains the major revenue contributor to Sunway REIT, at over 67%.
2. Distribution per unit (DPU) increased from 9.22 sen in FY2022 to 9.30 sen in FY2023 but is still marginally below FY2019 levels due to a relatively large private placement exercise in late 2020. However, the REIT is optimistic about soon reaching similar DPU levels as in 2019. The REIT also aims to maintain its 100% distribution payout for FY2024, barring unforeseen circumstances.
3. The Retail segment remains the key growth driver for Sunway REIT in FY2023, benefiting from increased retail footfall and healthy retail sales. The impressive performance of the newly opened Sunway Carnival Mall New Wing provided a significant boost. The average retail occupancy rate remains high at 97%. The management outlook for this segment continues to grow steadily, supported by healthy economic growth and sustained domestic consumption. NPI is expected to further uplift upon completing ongoing asset enhancement initiatives (AEI).
4. The Hotel segment saw an increase in occupancy rates (FY2022: 54% vs FY2023: 64%) as travel demand recovered post-pandemic. Additionally, government initiatives such as the 30-day visa-free entry and improved flight connectivity bode well for the outlook of the hotel segment.
5. The outlook for the Office, Services, and Industrial & Others segments remains stable. The Office segment outlook remains stable, with certain quality offices performing better than others but impacted by incoming supply, especially in the Kuala Lumpur city centre. The Services and Industrial & Others segments both remain stable as well because they are supported by positive rental reversions in accordance with the master lease agreements that the REIT had secured.
6. Sunway REIT is embarking on significant AEIs with a total planned capital expenditure of RM1 billion over the next two years. This includes space reconfiguration at Sunway Pyramid Mall – Oasis (RM190 million, expected completion Q4 2024), refurbishment of Sunway Carnival Mall (RM360 million, expected completion Q3 2025) and the Sunway Pier redevelopment (RM317 million – RM400 million, expected completion Q4 2026) to create a seaside development with food & beverage seafood market.
7. There are three acquisitions in the REIT’s pipeline: six hypermarkets from KWSP, an industrial asset in Penang, and a prime retail mall in Mont Kiara. The acquisition of six hypermarkets in Klang Valley and Johor is expected to be completed in May 2024, and this acquisition will provide an NPI yield of 8% and mark the REIT’s first entry into the Johor market.
The second and third pending acquisitions are an industrial asset and a retail mall. The industrial asset has a proposed acquisition value of RM67 million, offering an NPI yield of around 7%, while the retail mall is valued at RM215 million, with an NPI yield of 6.5%. Management is looking to complete both acquisitions by this year.
8. Some unitholders expressed concerns regarding the progress of data centre acquisitions, as Sunway REIT had previously indicated its intention to acquire more industrial, logistics, and data centre assets as part of its “Transcend 2027” growth strategy. However, CEO Clement Chen acknowledged a surge in the market supply of data centres. Consequently, the REIT is now taking a more diligent and cautious approach to evaluating opportunities in this asset class. Nonetheless, management will continue to actively monitor the market.
The fifth perspective
Sunway REIT highlighted a robust financial performance in FY2023, mainly driven by growth in the retail and hotel segments. With significant planned capital expenditure, a pipeline of acquisitions, and good corporate governance, the REIT appears well-positioned to drive future growth. Its increasing DPU and intention of maintaining a 100% distribution payout means the REIT remains a quality and solid dividend stock for investors.
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