KUALA LUMPUR (Jan 11): Sunway Real Estate Investment Trust (SunREIT) is buying a 15.46-acre piece of leasehold land and the buildings erected on it in Shah Alam for RM91.5 million.

In a filing with Bursa Malaysia today, SunREIT said it has entered into a conditional sale and purchase agreement with Champion Edge Sdn Bhd for the acquisition.

The 99-year leasehold land has a land area of 62,587.34 square meters, with buildings consisting of a two-storey office with an annexed one-storey factory with mezzanine floor, a three-storey office together with an annexed one-storey warehouse and an integral two-storey office together with a two-storey factory cum warehouse with an adjoining M&E building and other ancillary buildings.

SunREIT said the acquisition will be fully funded through its existing debt programme.

In a statement today, SunREIT said the property is located in the prime industrial hub of Shah Alam, Selangor, and is predominantly occupied by established multinationals, logistics and manufacturing companies.

The lease of the property, according to the REIT, is structured on a triple-net-lease basis (where all costs and outgoings in relation to the property are borne by the lessee) through a novation of an existing lease agreement.

"The lease has a remaining duration of approximately 18 years which shall expire on Dec 31, 2034," it said.

This initial term will automatically be extended for one further term of five years on the same terms and conditions.

SunREIT said the lessee has to notify the lessor in writing, not less than 18 months prior to the end of the initial term, if it does not wish to renew the lease or if it wishes to extend the term for a period of more than five years but less than or equal to 15 years.

"The renewal term may also be extended to more than five years to a tenure of not exceeding 15 years. Based on the initial year's annual rental of RM5.6 million, this translates into an initial acquisition yield (based on net property income) of 6.12%," it explained.

Thereafter, SunREIT said the net property yield is expected to increase to 6.73% upon the next rent review in 2019.

Upon completion of the acquisition, SunREIT's property value will increase by 1.4% to RM6.52 billion from RM6.43 billion as at June 30, 2016.

SunREIT said the proposed acquisition is part of its diversification strategy to strengthen income stability.

"In 2015, SunREIT has expanded its investment strategy to invest in long tenure stable income producing assets such as industrial properties, logistics warehouses, data centres amongst others. These assets shall not exceed 15% of total asset value. SunREIT will remain retail focused within a diversified asset portfolio spanning across key high growth states in Malaysia," it said.

SunREIT's manager Sunway REIT Management Sdn Bhd's chief executive officer Datuk Jeffrey Ng said under the prevailing challenging operating environment, investment in this property offers stable income stream regardless of economic and market condition.

"The proposed acquisition is backed by a long lease and tenanted by a reputable tenant, hence, able to offer SunREIT a resilient rental income stream and contribute positively to its earnings and distributable income," he said.

"SunREIT's asset will increase to 15 upon the completion of the proposed acquisition and reinforces its position as the second largest REIT in Malaysia with a property value of RM6.52 billion. We are on track to meet our target of RM7 billion by financial year ending June 30, 2017," he added.

SunREIT gained two sen or 1.17% to close at RM1.73 today, valuing it at RM5.04 billion.