REIT investment completes Sime Darby property

PETALING JAYA: Sime Darby’s plans to monetise its Australian properties and deleverage its balance sheet is a step in the right direction for setting up a Real Estate Investment Trust (REIT) business model that will help unlock the value of its other assets in the future, Maybank Investment Bank (MaybankIB Research) said.
“We have previously highlighted that a REIT set-up is the missing puzzle in Sime’s existing property business model. The financial impact of this deal is unknown for now given the scarcity of details,” analyst Ong Chee Ting said in a report yesterday.
Based on past guidance, he said the Australian assets may be worth RM1 billion-RM2 billion.
However, Ong said investors should not expect significant disposal gains as some of these assets were accumulated only in recent years.
On Monday, Sime Darby signed a Framework Agreement with the manager of Saizen REIT (SZREIT) that will see the former doing a reverse takeover of the latter.
Sime Darby plans to dispose of some of its Australian assets into SZREIT in exchange for new SZREIT units and cash.
In addition, Sime Darby plans to buy 80% of the manager of SZREIT, Japan Residential Assets Manager Ltd.
Since the parties involved have until Sept 30 to finalise the details of the agreement, Ong said he is unable to quantify the financial impact at this juncture.
“The value of the proposed disposal, property yield, structure and others are unknown. But we expect Sime to place out a large chunk of the new SZREIT units post (or concurrently with) the asset disposal as Sime has previously said that it planned to hold approximately 25%-30% of a REIT while maintaining control of the assets via control over the REIT manager,” he said.
SZREIT is currently a shell company after it disposed of all its Japanese assets and distributed most of the cash proceeds back to unit-holders.
MaybankIB maintained a “hold” recommendation on Sime Darby with an unchanged target price of RM7.56 on 21 times FY17 price-to-earnings ratio.
Meanwhile, Public Investment Bank Research estimates that SZREIT’s market capitalisation will be at least SG$300 million (RM894 million) following completion of the asset injection exercises.