24-07-2008: SunCity: REIT listing later this year

by Lim Shie-Lynn

KUALA LUMPUR: Sunway City Bhd is evaluating various proposals for the listing of its real estate investment trust (REIT) in view of the overall bearish mood in the markets, its executive director Datuk Jeffrey Ng said.

Ng said that the property developer would continue with the listing of SunCity REIT in the second half of this year. However, he did not elaborate if the REIT listing would be delayed until market conditions improved. SunCity REIT has assets worth RM3.7billion.

Upon listing, the SunCity REIT was touted to be the largest in the country, with a property portfolio comprising three segments — retail, hotel and commercial.

Among the properties that would be injected include the Sunway Pyramid Mall which has a market value of RM1.63 billion, Carnival Shopping Mall in Penang, Monash University campus, Sunway University College and Menara Sunway.

Other properties included in the REIT would be the Sunway Resort Hotel & Spa and Pyramid Hotel.

“With the various properties involved, there would be fair bit of work to do as we recognise that the market is soft,” Ng told The Edge Financial Daily.

However, he declined to elaborate whether the company would opt to list in Singapore.

Compared with Malaysia, Singapore offers attractive incentives in REIT investments as investors are exempted from withholding tax.

According to the Singapore Exchange Ltd, foreign institutional investors and corporations are subjected to a 10% withholding tax up to February 2010. For REIT investment in Malaysia, a withholding tax of 28% is imposed on foreign institutional holders while individual investors are taxed 26%.

Analysts said the real estate investment industry in Malaysia (M-REITs) would be headed for tougher times as a result of the negative sentiment in the property sector due to rising construction costs and a decline in the housing take up rates.

JP Morgan said the growth of M-REITs was unlikely to outperform the property sector. It said the overall weak consumer and business sentiment arising from higher costs could lead to a slowdown in rental revisions.

The research firm said there was a lack of liquidity in the stocks. In a recent report, JP Morgan downgraded SunwayCity to a neutral stance as there was a possibility of the property developer delaying its REIT listing.

“Despite the strong asset base of properties to be injected into the REIT, we fear that the listing may be delayed given the lack of appetite for new equity and the recent de-rating of REITS overall,” property analyst Simone Yeoh said in the report.

JP Morgan revised the SunCity target price to RM2.16 from RM2.50 previously. It had also reduced the property developer’s earnings by 6% for FY08 and 13% for 2009 to account for softer residential property sales.

“Sunway City is evaluating proposals in the REIT structuring to make this listing successful. It is a matter of pricing and packaging the assets given the current market situation that we are in,” Ng said.