Sunway Real Estate Investment Trust (Sunway REIT) is on track to increase its property value to RM15 billion in the financial year ending June 30, 2025 (FY25) under its Transcend 2025 (TC25) initiative, despite current and future headwinds.
TC25 is a programme that develops a strategic roadmap to capitalise on Sunway REIT's diversity to set mid-term goals and aspirations up to FY25 through the implementation of multifaceted strategies such as expanding investment into emerging growth subsectors.
Sunway REIT Management Sdn Bhd chief executive officer Datuk Jeffrey Ng Tiong Lip told NST Property that the REIT is refreshing and restrategising its Transcend 2025 goal to an improved roadmap to grow the REIT and its performance on a sustainable basis.
Ng said that more information on the revised Transcend will be released in the near future.
Sunway REIT owns a portfolio of 18 assets comprising four retail malls, six hotels, five offices, a medical centre, an industrial property, and an education asset with a combined property value of RM8.7 billion as at September 30, 2021.
According to Ng, its efforts through both organic and inorganic growth are aimed at driving the recovery of its Distribution per unit (DPU) in the short term and, more importantly, the long-term sustainability of DPU growth.
He said that the company will increase its diversification efforts in several business segments, including services and industrial, with a target of 15 per cent to 25 per cent of Total Asset Value (TAV), with a focus on sunrise assets in e-commerce, logistics, warehousing, healthcare, education, and data centres.
"We capitalised on planned opportunities to selectively expand, modernise, enhance and reposition certain properties in our portfolio, boosting our offerings to cater for future market needs and trends post-Covid-19. With our strong balance sheet, acquisition growth remains our key focus to further diversify our asset portfolio," he said.
Sunway REIT, according to Ng, has undertaken a strategic review initiative to investigate new and emerging business trends to defend and/or grow the assets' performance in the medium and long term, including opportunities to realign and reposition our portfolio assets to capture a wider market as well as new markets.
As part of its business strategies, he said that the REIT will continue to engage in Asset Enhancement Initiatives (AEIs) to grow and optimise the future performance of assets in its portfolio such as Sunway Resort Hotel, as well as Property Development (PDs) activities for the expansion of Sunway Carnival Mall to defend and/or enhance property yields.
"We continue to pursue our diversification efforts in the services, industrial and others segments, particularly assets relating to e-commerce, logistics, warehousing, healthcare, education and data centres. From a risk management perspective, the leases of these assets are structured on long leases with predetermined lease terms, which provide steady income contribution to cushion any potential adverse financial impact in the event of any economic downturns in the future," he said.
Ng said with the support of its sponsor and Sunway Group, Sunway REIT enjoys unique competitive advantages of capitalising on opportunities including the capability to finance and conduct large scale AEIs and PDs, and the potential to selectively acquire strategic sponsor assets in centrally located, vibrant and synergistic townships with sizeable population catchments across the country.
"The pandemic has brought forth new normal behavioural market trends under the current and foreseeable operating landscape. Sunway REIT has been affected by movement restrictions and economic downturn amidst the Covid-19 pandemic, particularly our retail and hotel segments which are highly dependent on consumer, tourist, and business (business travellers and MICE) spending," he said.
Ng said that operational disruptions and various phases of movement control orders caused by the pandemic hurt Sunway REIT's financial performance.
As a result, the REIT's Net Property Income (NPI) and DPU had decreased significantly compared to the pre-pandemic period, resulting in a lower unit price, he explained.
Moving forward, Ng said that Sunway REIT is on track for recovery because the majority of the population has been fully vaccinated, and with the movement restrictions lifted, it expects a more resilient performance, encouraged by the recent recovery in footfalls and retail sales for its retail segment.
"Similarly, we saw a gradual recovery in the hotel segment," he added.
Dealing with the ongoing pandemic
According to Ng, the pandemic had hurt many businesses, including the operations of tenants.
He believes, however, that there is always a silver lining to every cloud, and Sunway REIT is taking advantage of this window of opportunity to reposition and re-strategize on how to benefit from the uptick once the pandemic is over.
"Our immediate response is to ensure business continuity and crisis management for various stakeholders remains our key priority," he said.
Sunway REIT, according to Ng, has provided rental assistance above RM150 million to affected tenants and lessees throughout the pandemic period.
This had strengthened the business relationship and goodwill even further, he said, defending occupancy in the short term and paving the way for recovery in the medium term.
Ng said that the firm's asset managers have accelerated digital adaptation through the introduction of e-commerce platforms by encouraging tenants to participate in its online marketplace, recognising that online and offline (O2O) platforms coexist and complement the retail experience, particularly in the post-Covid-19 era.
"Another part of the strategy employed by us during this lulled period is optimising our capital management strategy to capitalise on the low-interest-rate environment to reduce financing cost and improve operational efficiency. We are also looking for an opportunity to make potential accretive acquisitions in the market as a result of the pandemic," Ng said.
Ng said though the pandemic affects most if not all the M-REITs, the impact differs depending on the portfolio asset concentration and focus.
M-REITs with asset portfolios focused in sectors such as retail and hotel segments are severely affected by consumer and business sentiments as well as various movement restrictions given the stringent lockdown of malls and strict curbs on travel-related activities.
"While still fighting the pandemic, industrial and services sectors, including healthcare and education sectors, have demonstrated relative resiliency on the back of their tenancy structures which is typically long-term master lease with fixed step-up in rental rates.
"We are looking at better times ahead for the last quarter of 2021 and into 2022, underpinned by improved employment outlook, festive seasons, local pent-up demand, and "revenge-spending" pattern amidst limited international travelling. We expect uncertainties to linger in the first half of 2022 on the back of the development of the Omicron virus.
"In all, we anticipate the economy to strengthen in 2022 as major economic sectors recover coupled with the expectation of gradual re-opening of international borders and arrival of international tourists. In addition, an accommodative monetary policy is important to support economic recovery," he said.
According to him, the assets in the Sunway REIT portfolio have shown encouraging signs of business recovery as Malaysia entered Phases 3 and 4 of the National Recovery Plan.