Friday, April 9, 2010

Sunway City may list biggest Reit in Malaysia

GIC could be major shareholder in proposed venture with RM3b assets

SUNWAY City (SunCity), which counts the Government of Singapore Investment Corporation (GIC) as its second largest shareholder, could list Malaysia’s biggest real estate investment trust (Reit) by mid-year. It has already identified eight size- able assets to be injected into the trust.

A combination of hotels, retail and offices would be injected into the Reit whose assets are valued at over RM3 billion (S$1.3 billion). These include the popular Sunway Pyramid Shopping Mall and Resort Hotel & Spa, the Pyramid Tower Hotel, Menara Sunway, Sunway Carnival Mall, Sunway Hotel Seberang Jaya, SunCity Ipoh Hypermarket, and Sunway Tower.

Its listing, previously delayed because of the global financial crisis, is expected over the next few months.

SunCity and its subsidiaries are proposing to dispose of their entire interest in the assets to a Reit for a consideration to be determined later, the company said in an announcement to the exchange on Wednesday.

In a report yesterday, Hwang-DBS said it expects the disposal to be satisfied by a combination of cash and units in the Reit and that SunCity, whose biggest shareholders are Jeffrey Cheah Fook Ling (40 per cent) and GIC (21.3 per cent), would likely want to own a third of the Reit.

GIC is also expected to be a major shareholder in the Reit, given its 48 per cent ownership of prized assets Sunway Pyramid and Sunway Resort Hotel, which were acquired during the Asian financial crisis of the late 1990s when the then debt-laden group invited the Singapore investment agency to be a partner.

Hwang-DBS said SunCity management was aiming for a 6-7 per cent yield – versus the sector’s 8.5 per cent – justifying it on grounds that the Reit would be the biggest in Malaysia. Moreover, it has a strong pipeline in place, given that the group owns numerous other properties.

Malaysia has eleven Reits with YTL group’s Starhill Reit currently the largest with assets exceeding RM1 billion. However, despite better returns than fixed deposits – some Reits returned yields of up to 5.5 per cent last year – investors have been slow to warm to their potential.

In any event, SunCity’s proposed Reit would help promote the vehicle as an investment option and at the same time help it unlock value and improve return on assets.

SunCity is expected to receive net proceeds of about RM560 million after paying about RM750 million of Reit asset-related debts, which could be used for land bank acquisitions and the development of new investment properties, said Hwang- DBS, which has upgraded the stock to a ‘buy’.

Source: Business Times, 9 Apr 2010

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