THE opening of Gurney Paragon Mall on July 23 will mark an important shift for Penang-based Hunza Properties Bhd. From being just a developer, the group will grow its investments in major real estate and intends to eventually form a real estate investment trust (REIT).

"We are transforming from a pure developer into having real estate investments. In the long term, our regular recurring income will come from real estate," executive director Datuk Khor Teng Tong tells The Edge.

Hunza aims to have new integrated developments in Penang, where half the components — malls, offices and hotels — will be kept for recurring income.

As it undertakes more projects, the percentage of real estate investment in the group's portfolio will increase, says Khor. “This will ensure a steady stream of recurring income for Hunza and allow the company to enjoy capital appreciation potential."

The Gurney Paragon Mall and Hunza Tower, a 10-storey office block, will complete the Gurney Paragon development, which includes two high-end condominium towers and St Jo's, a refurbished heritage building. Some 55% of the development, consisting of the mall, office and retail components, will be retained for recurring income.

Gurney Paragon sits on 10 acres of prime land along Gurney Drive, with an additional frontage on Jalan Kelawai.

St Jo's, coined from its original name St Joseph's Novitiate, was opened by the De La Salle Brothers in 1918 to train young men in the religious order. Hunza's restoration of the building has preserved a piece of Penang's colonial architecture and history. St Jo's will house restaurants and cafés, and is already partially open, with a Ben's by BIG having started operations.

St Jo's is the centrepiece for the Gurney Paragon Mall, which is built around the historical building and integrated at each level. The mall has a gross development value (GDV) of about RM450 million, with a net leasable area of 700,000 sq ft.

Lease commitments have been secured for 80% of the mall's space. “We target 95% by the end of this year and we think it is achievable because 80% is already signed and we are negotiating the rest," says Tay Phaik Huat, the company's director of corporate finance.

Gurney Paragon Mall will comprise eight floors of retail space, on top of which Hunza Tower will sit.

Some of the mall's mini anchor tenants are Bentley Music, Celebrity Fitness, H&M — fourth store in Malaysia — and TGV Cinemas, which will take up the entire eighth floor.

"We will groom the mall and when the revenue streams are coming in nicely, we will inject it into a real estate investment trust," says Tay. Based on other malls in the area and Gurney Paragon Mall's rental structure, it should start maturing after about five to six years, he adds.

"Based on comparable malls in the vicinity, Gurney Paragon Mall — which only cost RM475 million — could fetch a market value as high as RM931 million upon maturity," Alliance Research said in a recent note.

Khor believes Hunza's earnings will see an improvement in FY2014 ending June 30, once the mall begins contributing to the group.

Hunza has seen a decline in its net profits over the last few quarters. It posted an 88.4% decline to RM1.5 million in the third quarter ended March 31, as it had run out of completed stocks and had fewer launches this year.

"Next year, we target over RM70 million in revenue from rental income," he says, adding that about RM60 million will come from Gurney Paragon Mall. Earnings should kick in six months after the mall's opening on July 23, with contributions to be reflected in Hunza's FY2014 results.

Hunza also has 42 acres in the Bayan Baru industrial area that it plans to develop in line with its new business model — half the units will be for sale while the other half will be for real estate investments.

The estimated cost of the 42-acre development is between RM3 billion and RM3.3 billion. However, the company has yet to work out the project's GDV.

Hunza plans to have residential units on 45% of the development while the rest will make up the investment portion and will include an office tower, a hotel, a hospital and a shopping mall.

"The net sellable area will be about nine million sq ft and the master plan is in the planning stages," Khor says. The market for this project will largely be international buyers, he adds.

However, before work can begin on the project, Hunza will have to relocate the squatters in the area. It is planning to relocate them to 690 low-cost housing units in the surrounding area and expects approval from the authorities soon.

Hunza hopes to begin development on the Bayan Baru integrated development in 2016 and targets completion by 2018.

"Another integrated development in the planning stage is a 36-acre parcel in Juru on the mainland," Khor says, adding that the built-up could come to 3.2 million sq ft. This project will be different from the Bayan Baru integrated development in that Hunza expects the target market to be mainly locals.

The company may sell about 60% of developments on the parcel and retain the remaining 40% for investment income.

At present, details of the project are limited as Hunza is in the process of drawing up the master plan. The Juru integrated development will have retail and commercial components. However, “components like a hotel, hospital and so on have not been included in our Juru development at this juncture", Khor says.

In the meantime, Hunza's earnings will come from new launches at its Bandar Putra Bertam development and Alila II.

Bandar Putra Bertam is a residential development in Kepala Batas, Seberang Perai. In May, Hunza launched 173 double-storey terraced houses. It had previously launched 128 semi-detached houses on the parcel.

The semi-detached units have been fully sold and have a GDV of RM49 million. The terraces, on the other hand, have seen a 50% take-up rate and have a GDV of RM55 million. Hunza targets to complete this phase by the second quarter of 2014.

"We target to launch another phase of 184 units of double-storey terraced houses by end-2014 due to good response from purchasers," says Khor, adding that this will have an estimated GDV of RM60 million.

The Bandar Putra Bertam development will also have a 150,000 sq ft hypermarket, which is expected to be completed in the second half of next year.

Khor says after these launches, the company will still have 350 acres left for development within Bandar Putra Bertam, which is expected to sustain the group's earnings in the years to come.

Alila II is a high-rise “green building" project that will be built next to Hunza's existing Alila residential development in Tanjung Bungah. It has an expected GDV of RM450 million and about 630,000 to 650,000 sq ft of space. Hunza plans to start work on the project this year and it should begin contributing to group earnings from 2015 to 2017.

This article first appeared in The Edge Malaysia Weekly, on July 1, 2013.