This article first appeared in City & Country, The Edge Malaysia Weekly on November 25, 2024 - December 1, 2024

The year is looking good for Sime Darby Property Bhd (KL:SIME­PROP). After achieving record-high revenue and operating profit — since its demerger in 2017 — of RM3.4 billion and RM606.4 million respectively in FY2023, ended Dec 31, the group has chalked up its strongest nine-month performance to date for the period ended Sept 30 with a 35% increase in revenue to RM3.27 billion, while operating profit grew 51% to RM729.5 million.

With nearly 50 years of building townships and communities under its belt, the country’s largest pure-play developer by land bank unveiled its SHIFT25 strategy in 2021 to transform into a real estate development company in order to diversify its revenue streams.

Group managing director Datuk Seri Azmir Merican says SHIFT25’s target to achieve a 70:30 split between non-recurring income and recurring income is on course. “I’m a big believer in strategy and clarity, and SHIFT25 has brought a lot of clarity to the organisation, so the direction is very clear. Our property development business is growing really well and our recurring income business is on track.”

“To give you an idea, our entry into the data centre segment with the construction of Google’s hyperscale data centre gives us a 20-year recurring income, with an option for renewal. Our malls are also doing extremely well — KL East Mall is 96%-occupied and is now investment-grade, and our recently opened Elmina Lakeside Mall was already investment grade with 97%-occupancy at its opening [in August],” he adds.

The RM2 billion deal with Google anchors the group’s recurring income base. “This project marks our strategic entry into a new economy asset class, partnering with one of the world’s foremost tech giants. This development positions Elmina Business Park as a strategic and viable location for international tech firms looking to expand,” Azmir explains.

As for its property development business, the group achieved total sales of RM3.3 billion in FY2023, surpassing its sales target of RM2.7 billion by 22%, and handed over approximately 3,440 units. It has recently raised its sales target for FY2024 from RM3 billion to RM3.5 billion.

Sime Darby Property shares a host of other highlights for the past 12 months. A key one is the successful closing of its inaugural Industrial Development Fund (IDF) in May. The fund, which was co-managed through a joint venture with Logos SE Asia Pte Ltd (Logos Property), reached its target of raising RM1 billion in the final close.

“We’ve recently completed Metrohubs 1 and 2 at the 177-acre E-Metro Logistics Park in Bandar Bukit Raja, which is the fund’s maiden project. The two warehouses measure cumulatively about 2 million sq ft and are already about 50% leased out with J&T Express, ComOne Express and JD Logistics as tenants, underscoring the industrial park’s success in attracting multinational tenants,” says Azmir.

The company has also launched industrial products with a gross development value of RM689 million and an overall take-up rate of 77%. Its established industrial developments are at Bandar Bukit Raja, Elmina Business Park and Serenia City in Selangor; Nilai Impian and Hamilton Nilai City in Negeri Sembilan; and Bandar Universiti Pagoh in Johor.

In May, Sime Darby Property formed a joint venture with GSPARX Sdn Bhd, a solar solution provider and a wholly owned subsidiary of Tenaga Nasional Bhd (KL:TENAGA), to undertake rooftop solar projects across its assets and development. This is among the group’s near-term strategies to reduce 40% of its Scope 1 and Scope 2 emissions by 2030.

“We are committed to achieving net zero carbon emissions by 2050. Our efforts were acknowledged with an improvement in our Carbon Disclosure Project rating, moving from ‘C’ to ‘B’, surpassing Asia’s average,” says Azmir.

The group has also been actively improving urban biodiversity at its developments. “The City of Elmina is our flagship development and we have a lot going on there including a rewilding project where we are planting trees. Because Elmina is next to a forest reserve, we want to connect the forest to the park, rewild the whole area and improve the gene pool,” he says.

“I think we have a big opportunity to do this because we build townships. We want to look at urban biodiversity as it is the biggest win for us and it also gives value to our townships. We saw how nature can restore itself during the Covid-19 pandemic. Now we need to learn to restore nature. These are things that we’re learning as we plan our next township, and our young guys are super keen.”

The group has also enhanced some of the community assets in its townships through strategic placemaking. Some of its key initiatives include KL East Park and KL East Micro Forest, PARC at Taman Subang Ria, The Courts at KLGCC Resort, Elmina Central Park’s Urban Park and BBR Wetland Townpark at Bandar Bukit Raja.

“We were also successfully re-included in the FTSE Bursa Malaysia Mid 70 Index on June 24, 2024, which affirms market confidence in the group. And we were featured in the inaugural Fortune Southeast Asia 500, which recognises the region’s largest companies by revenue for 2023,” he adds.

With 25 active townships and developments across the country, Sime Darby Property had about 14,800 acres of land bank as at December 2023, with most of them located on the west coast of Peninsular Malaysia. It operates about 7.7 million sq ft of net lettable area across commercial, retail, hospitality, education and industrial segments within its investment and asset management business.

The group is also part of the Malaysian consortium — together with S P Setia Bhd and the Employees Provident Fund — that successfully redeveloped the Battersea Power Station in London, the UK.

Azmir, who took the helm at Sime Darby Property in 2020 shortly after the Covid-19 pandemic hit, shares his thoughts on the group’s performance amid its transformation trajectory.

Datuk Seri Azmir Merican: The increase in our sales target to RM3.5 billion for FY2024 was primarily driven by our strong 1H2024 performance. We achieved RM2.1 billion in sales, which amounts to 60% of our revised full-year target.

The positive growth is a result of our diversified product mix between landed, high-rise and industrial properties; robust market response to our industrial and residential high-rise products; and significant site progress across our key townships.

Unlike before, we are doing a lot more high-rise projects. It’s not a traditional sector for us but we are consistently launching over a billion ringgit worth of high-rise projects each year and their take-ups have been really good, which has also added to our confidence.

Our ongoing expansion into industrial and logistics developments has proven highly effective, contributing 35% to total sales in 1H2024, and aligns with our SHIFT25 strategy to diversify our revenue streams.

We are tactically exploring how we can continue to deliver quality homes, experiences and developments for our purchasers beyond our current Net Promoter Score of 70%. To enhance brand visibility and ensure that our products reached the right audience, we executed targeted marketing campaigns and customer engagement initiatives. Digital marketing strategies and strategic partnerships allowed us to meet evolving customer preferences and maintain a competitive edge in the market.

There were a lot of challenges, including inflationary pressures, the ripple effects of the Covid-19 pandemic, rising material costs and a labour shortage, especially skilled labour, which impacted the industry significantly. Our proactive measures, including cost optimisation strategies, improved design efficiency and collaborative efforts with contractors, allowed us to mitigate these challenges.

We also had to overcome supply chain issues. By adjusting our supply chain management to mitigate the impact of rising material costs, fostering closer relationships with suppliers and implementing rigorous cost-control measures, we managed to maintain our timelines and deliver on our commitments.

We are also building the Elmina Innovation Park as part of our quality enhancement initiatives. This will be a dedicated space where entrepreneurs, researchers, designers, innovators and corporations can collaborate to transform ideas into industry-changing products and services.

SHIFT25 is driven by three engines of growth: one focuses on maximising our core business in property development, another expands our portfolio mix with recurring income assets and the third explores new and disruptive business ventures.

Our entry into the data centre asset class with Google’s hyperscale data centre project is a strategic step in boosting our recurring income portfolio in a growing new economic sector. We have entered a 20-year lease for this project, valued at RM2 billion, with options for renewal, which provides a stable source of recurring income for the group.

Our investment and asset management segment has seen progress in occupancy rates in existing malls, with KL East Mall reaching 96% and Elmina Lakeside Mall already 97% tenanted when it opened in August this year. This is indicative of Sime Darby Property’s successes in growing its neighbourhood mall portfolio.

Key initiatives under the SHIFT25 strategy include the execution of our built-to-core strategy where we will own and operate key assets within our townships as a core driver of building Sime Darby Property’s assets under management and recurring income.

Moving forward, we look to leverage our land bank in key growth areas to develop more industrial and logistics facilities, which will play a crucial role in further boosting our recurring income streams and enhancing value creation for stakeholders.

We are also exploring new fund opportunities, which include the formation of more private funds domestically and abroad, potentially including a domestic-listed REIT to manage stabilised investment-grade assets.

We see data centres as a key growth area and will continue to explore opportunities in this sector. The successful collaboration with Google positions us well to attract additional operators to consider Malaysia and specifically our industrial parks as strategic hubs for their Southeast Asian operations.

We are keen to do more but we are very selective with who we work with and we don’t want to sell land. We are in discussions with other potential partners to collaborate on new projects and we envision this asset class becoming a mainstream offering within our portfolio.

It is progressing as planned and is expected to be completed by the end of 2024. We need to reorganise to be more efficient, lean and agile. With this reorganisation, we can operate with greater flexibility and improve management efficiency across all business segments.

A key aspect is the segregation of the property development business, which will enable us to have a clear focus on each township’s financial and operational performance. The restructuring of management services will also focus on improving coordination, eliminating inefficiencies and optimising resource allocation, ultimately boosting cost-effectiveness. This is designed to sharpen the company’s operational focus and improve efficiency, positioning Sime Darby Property for future growth.

Early feedback from stakeholders has been positive, with improved clarity in business objectives and enhanced collaboration across our subsidiaries being noted as immediate benefits.

We are optimistic about the property market in 2025, expecting healthy demand to persist, particularly in the industrial and logistics segments. As economic conditions stabilise and consumer confidence improves, we anticipate increased interest in residential and industrial properties, supported by government policies favouring homeownership and investment in infrastructure.

Industry projections indicate that the industrial property segment will continue to see steady growth, driven by increased demand for logistics and warehousing spaces. The residential sector is also expected to benefit from improved financing options and incentives for homebuyers.

We will continue to strategically activate our land bank and diversify product offerings to sustain our growth and meet evolving market demands.

Although we see a positive market outlook, competition from fellow developers especially in high-rises is seen, for which we have to be agile and innovative to capture the limited market segment.

We also see growing opportunities in developments that emphasise sustainability and urban biodiversity. As buyers increasingly prioritise eco-friendly living environments, integrating green spaces and promoting urban biodiversity will become key differentiators.

By focusing on innovative, community-driven developments that blend nature with urban living, we are well-positioned to meet evolving buyer preferences and capitalise on future market growth.

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