SunCity ... Sep10

Sunway Real Estate Investment Trust’s (SunREIT’s) listed, which netted RM500 million in proceeds for Sunway City Bhd (SunCity), investors may be wondering what the property developer plans to do with the hefty amount of cash.

SunCity planned to focus on developing investment properties that could be injected into the REIT in the long term. Over the short term, some existing properties could be upgraded and cross-market synergies would be created with assets already in the REIT. It will also use some of the proceeds to do land banking or joint ventures in the property development side and some of them will be committed to continue to expand the investment portfolios.

The RM500 million proceeds from the SunREIT listing had improved the company’s gearing, allowing it to gear up further to take advantage of expansion opportunities.

As at June 30, 2010, SunCity’s shareholders’ funds stood at RM2.45 billion. Cash and cash equivalents amounted to RM468.8 million while total borrowings were RM1.62 billion. Inclusive of the RM500 million proceeds, net gearing now stands at 0.46 times.

Under the listing exercise, Sun­City injected eight properties valued at RM3.4 billion into the REIT and retains a 38.3% stake (deemed interests) in SunREIT. Due to its major stake, SunCity will see a direct benefit from higher distributions by the REIT.

Currently, SunCity’s property investment division, together with property development, are the two largest contributing divisions of the company’s five business segments, with the others being hospitality, leisure and healthcare.

In the 18-month financial period ended Dec 31, 2009, property investment contributed RM204 million or 48% to core pre-tax profit, while property development accounted for RM149 million or 35%.

SunCity is one of the few developers in town with a sizeable investment department.

SunCity is currently developing a 25-storey commercial office block, The Pinnacle, in Bandar Sunway. It is scheduled for completion in 2013 at a gross development value (GDV) of RM300 million.

Apart from The Pinnacle, other projects which could be injected into SunREIT are Lost World Hotel in Tambun, Ipoh (GDV of RM30 million, in two blocks to be completed by January and August 2011), and Sunway Velocity shopping mall in Cheras (GDV of RM500 million, completion 2015).

Among the existing pool of investment properties held by SunCity are Monash University campus held at book value (BV) of RM171.2 million, Sunway University College with RM135 million BV, Sunway Hotel in Penang at RM24.2 million BV and 75%-owned Sunway Medical Centre with RM103.5 million BV.

SunCity would be acquiring an additional 45% stake in Sunway Lagoon Sdn Bhd (SLSB), which owns the Sunway Lagoon theme park, on top of its 51% controlling shareholding.