RM300m overhaul for ex-Yaohan mall

PETALING JAYA: With renovations set to begin in May, Sunway Real Estate Investment Trust (Sunway REIT) aims to return the former Yaohan mall, one of Kuala Lumpur's oldest shopping centres and in its prime, the city's largest, to its heyday.

Now christened Sunway Putra Place (SPP), the REIT managers intend to set aside RM300mil in capital expenditure (capex) for a total overhaul of its retail complex, which will reopen in the first quarter of 2015 as an “urban lifestyle mall”.

According to Sunway REIT chief executive officer Datuk Jeffrey Ng, the revised building plans have been submitted to the authorities and the firm is hoping to get the go-ahead this month.

Although he was not able to disclose the proposed increases in net lettable area and gross floor area for the mall pending regulatory approval, Ng told StarBiz in an interview that the extensive refurbishments could more than double rental rates, with the goal being to work towards Sunway Pyramid's average gross rental of RM12 per sq ft from RM5 currently.

SPP is also projected to double its net property income contribution and increase its gross floor area by 90,000 sq ft post-refurbishment, according to Sunway REIT's latest annual report.

“There will be an F&B frontage and entertainment. Day or night, the whole place will be abuzz with activity. This allows it to be a destination for our target market, which is the mid-to-upper income shopper.

“Putra World Trade Centre, which is nearby, can be a very busy place when there are events, and the Umno headquarters is another built-in customer base. We can leverage on this,” Ng said.

Within an immediate 2.5km radius, SPP has a catchment of 2,000 homes and 10,000 people. Neighbourhoods in the vicinity include Sentul, Segambut, Jalan Duta, Kenny Hills, and Bukit Tunku.

“It was also surprising to us that we had exhibitors at Matrade staying at Sunway Putra Hotel. This was something we didn't foresee, but the 2.5km radius captures a large market,” Ng added.

All tenancies for the mall, which counts Parkson and Cold Storage as anchor tenants, will be retired come the end of the month to make way for a new tenant mix.

“Our objective is to restore SPP to its glory days. It will be beyond recognition, with a whole new feel in terms of traffic circulation, customer walkthrough, and retail layout,” Ng explained.

The shopping centre, launched in 1987 with much fanfare by then prime minister Tun Dr Mahathir Mohamad, was hard-fought.

After Sunway REIT bought it through a public auction in March 2011 for over half a billion ringgit, several parties mounted legal actions against the company.

In April last year, the Court of Appeal dismissed all appeals by Metroplex Holdings Sdn Bhd, the previous owner of SPP, its holding company Metroplex Bhd, and Robert Ti and Kornelis Kurniadi, a bidder and his agent, who had challenged the validity of the auction.

Earlier estimates had tagged the renovation at RM200mil, with works originally scheduled to begin in the first quarter of this year and take 15-18 months. Under the revised plans, the development period has been extended to 22 months.

Ng noted also that the RM300mil is a ballpark figure as the works are in the process of being tendered out. Nonetheless, he believes the investment, which would be funded by debt, is not excessive.

“A substantial sum is going to the M&E (mechanical and electrical), which would be entirely new, and we are adding more space. The building is 25 years old. You have to bite the bullet and spend what you need to get the returns.”

At its current gearing of 32%, Sunway REIT has debt headroom of RM900mil before it touches the permissible 50% gearing level. But the management has said it would keep leverage at around 40%, which means it can gear up by a further RM500mil.

Besides the mall, Sunway REIT is also finalising the capex for SPP's office and hotel components.

While the mall is to be closed during the renovation, the hotel and offices will continue to operate. Asset enhancements on the hotel and offices are slated for completion six to nine months later than the mall.

Following the refurbishment, Sunway REIT is hoping to improve the four-star hotel's average daily rate to RM300-RM400 from less than RM200 currently.

Rentals for the office, meanwhile, are targeted to rise to between RM4 and RM4.50 per sq ft from RM3.

“We want to make the three assets compatible so they can create more synergies. Once we get the client base right, they (the mall, hotel and office) will naturally feed off each other,” Ng said.

It should be noted that Sunway REIT stands to lose some RM14mil annually in rental income from the closure of the mall.

However, the company does not expect to see any adverse impact on its distribution per unit over the next two years as Sunway Pyramid, its trophy asset, is due for a major rental reversion of 60% of its net lettable area in September, the first quarter of its financial year 2014.