It sees double-digit rental growth on lease renewals of lettable space in Sunway Pyramid

Sunway Real Estate Investment Trust (Sunway REIT) is expecting to achieve double-digit rental growth when more than half of the lettable space in Sunway Pyramid comes up for renewal this month, tracking similar exercises in the past.

The retail property-focused trust had seen a rental reversion of 18% for leases renewed in Sunway Pyramid, its flagship asset, in the previous financial year. It has historically recorded rental reversions of between 16% and 18%. The shopping mall alone accounts for close to 60% of its yearly turnover.

Sunway REIT Management Sdn Bhd chief executive officer Datuk Jeffrey Ng told reporters at a post-AGMbriefingyesterdaythatSunwayPyramid was due for amajor rental reversion in September involving some 900,000 sq ft, or 54%, of its total net lettable area.

On potential asset injections, he said Sunway REIT was still on track to acquire one property a year, which means it has one more quarter in 2013 to do so.

Sunway REIT bought its maiden hospital asset last year in Sunway Medical Centre for RM310mil, and it has a target to boost its asset size to RM7bil from RM5.2bil currently by 2015-2017.

“I won’t speculate on our chances,” said Ng when asked if any acquisitions had been wrapped up.

“It is a seller’s market now, especially for office and hotel properties. Rest assured that we won’t buy for the sake of buying.

“We remain very, very selective. We can do a deal quite fast, but we’re not in a rush.”

And given the rising yield environment, Ng noted that yield-accretive acquisitions were harder to come by.

Sunway REIT has a ready pipeline of assets from its sponsor Sunway Bhd worth about RM2bilRM3bil, including properties such as Sunway Giza and the Monash and Sunway Universities. The retail, office and hotel trust has the first right of refusal over its sponsor’s assets.

REITs and other defensive stocks have lost some of their flavour amid expectations that interest rates across the world would gradually normalise, and as the US Federal Reserve pulls back on its monetary stimulus.

In mitigation, Sunway REIT has lowered its average cost of debt to 3.77% from 4.45% in the 2012 financial year by converting 81% of its debt into fixed-rate loans, locking in borrowing costs for the near term.

At these levels, Sunway REIT had one of the lowest debt costs among Malaysian REITs, which typically forked out some 4% in annual interest costs, Ng said.

In the meantime, the trust has earmarked RM530mil in capital expenditure for 2014-2015. Of this amount, RM300mil is bound for Sunway Putra Place, formerly the Yaohan mall, which is undergoing a massive two-year refurbishment.

Some of the funds are to be channelled to the Oasis Boulevard 5 extension in Sunway Pyramid, where 20,362 sq ft of new net lettable area will be added to the far side of the mall.

Swedish clothing chain H&M is also set to emerge as a key tenant there once renovation works are completed by year-end.