Sunway to dispose of land and buildings to its REIT


AmInvestment Research picked Sunway Bhd (Buy, FV: RM1.65) given that its local property launches have been generally well received due to good locations.

PETALING JAYA: Sunway Bhd has proposed to dispose of selected land and buildings to its real estate investment trust (REIT) for a total cash consideration of RM550mil.

The property and construction group said the proposed disposal was expected to improve the group’s cash flow and result in a net cash inflow totalling RM311.3mil.

Sunway’s shares closed unchanged at RM1.40 yesterday, while Sunway REIT rose two sen to RM1.64.

In its filings with Bursa Malaysia yesterday, Sunway announced that its wholly-owned subsidiary Sunway City Sdn Bhd had entered into a conditional sales and purchase agreement for the proposed disposal of subject lands and buildings in Sunway City to Sunway REIT to enable the group unlock the value and realise its investment in the properties.

“The proposed disposal enables Sunway group to unlock its capital from being tied-up in long-term assets and allows Sunway group to reinvest the capital in its core business activities,” the company said.

“The proceeds from the proposed disposal will result in a net cash inflow of RM311.3mil and is expected to improve the cash flow of Sunway group; and part of the proceeds from the proposed disposal will be utilised to repay existing bank borrowings, which is expected to reduce the gearing of the Sunway Group and potentially save RM9.9mil of finance expense per annum,” it added.

As for Sunway REIT, it said the proposed acquisition would be funded via a combination of its existing and/or future financing facilities.

The proposed acquisition is in line with the key investment objective of the manager to continuously pursue an acquisition strategy to acquire and invest in properties that are yield accretive with the potential to contribute to the long-term growth in Sunway REIT’s distribution per unit (DPU) and/or net asset value (NAV) per unit.

“The subject land and buildings are income-generating and are fully occupied. As such, the manager believes that the proposed acquisition will immediately improve the earnings and the DPU to Sunway REIT’s unitholders upon completion of the proposed acquisition,” it said, adding that the deal would provide Sunway REIT with stable and sustainable income stream over the next 30 years.

Sunway REIT’s property portfolio size was expected to increase to RM7.8bil after the proposed acquisition from about RM7.3bil as of June 30.

The proposed disposal is expected to be completed in the first half of 2019.

Sunway said the subject land and buildings are located at No 5, Jalan Universiti within the 324ha integrated development of Sunway City.

The proposal entailed the disposal of three parcels of leasehold land, together with buildings (including all fixtures and fittings, services infrastructure and systems located or used in the buildings) which comprise a five-storey academic block along with a lower ground level (south building); a six-storey academic block along with a lower ground level (north building); a 13-storey academic block together with a two-storey basement car park (new university block); four blocks of five-storey walk up hostel apartment; and sports facilities which comprise a football field, basketball court, netball court and tennis court.

Sunway’s said the total cost of investment (including other costs for refurbishments and renovations of the subject land and buildings) up to Dec 31, 2017, was RM382.8mil.

Of the RM550mil total proceeds from the proposed disposal, RM238.6mil would be used to repay borrowings, while RM311.3mil would be used for working capital and capital expenditure.

Sunway said the proposed disposal would improve its earnings per share by about 0.9 sen based on the group’s 4.85 billion shares.

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