This article first appeared in The Edge Financial Daily on August 30, 2019

KUALA LUMPUR: Sime Darby Property Bhd is looking to grow its recurring income base to 10% of total revenue from the current 6% over the next five years, as it expands into key growth sectors of industrial and logistics development as part of its transformation plan.

Sime Darby Property will see its industrial and logistics development contributing to revenue from 2021 onwards, said chief transformation officer Mohammad Fairuz Mohd Radi. “Right now, we are developing the assets first, only then can we get tenants to come in and get rental from them,” he told a media briefing yesterday on the group’s latest financial performance.

“We want to focus on really developing our industrial and logistics development capabilities within our business units so that we can grow that as a key business segment for us moving forward.

“This will help future recurring income for the company because we will build to suit and then lease industrial assets to attract local and MNC (multinational corporations) tenants to grow our recurring income,” Mohammad Fairuz said.

He said the group aims to venture into logistics and warehouse facilities, which require last-mile distribution, considering that Sime Darby Property already owns industrial land banks near its residential areas.

He said Sime Darby Property may also lease its properties to become a central kitchen with cold rooms that can be used for the delivery of food items to restaurants.

Another example Mohammad Fairuz cited is special-purpose buildings for data centres, which he said are quite in demand.

Sime Darby Property acting group chief executive officer Datuk Wan Hashimi Albakri Wan Ahmad Amin Jaffri said the group’s industrial assets can be used to accommodate manufacturing facilities as well.

“It’s going to be a diverse portfolio of different types of industries,” he said.

‘Property sector not getting any better in coming years’ Wan Hashimi, meanwhile, foresee the property sector remaining soft, saying “it is not going to get any better, especially for the next couple of years”.

Like many other developers, he cited difficulties faced by home buyers in obtaining loans will continue to be one of the challenges that will affect Sime Darby Property’s sales.

“We are pretty moderate about the market because of the soft conditions. I think there are a lot of things going on around the world that [are] going to affect our local economy so we still have to watch and see what’s going to happen in the global economy, which may drag the whole thing further,” he said.

Nevertheless, Wan Hashimi is confident the group is on track to achieve its sales target of RM2.3 billion for 2019, backed by its ongoing mixture of residential, commercial and industrial projects. The group is also planning some RM1 billion worth of new launches for the second half of the year.

In the first half of 2019, Sime Darby Property achieved total sales of RM1.4 billion due to its aggressive sales and marketing efforts. Total unsold completed properties fell 14.4% to RM746 million as at June 30, from RM871 million as at Dec 31, 2018.

On Wednesday, Sime Darby Property announced that its net profit for the second quarter ended June 30, 2019 (2QFY19) increased by more than four-fold to RM205.26 million from RM46.57 million a year ago. Revenue was up 40.26% to RM865.9 million, from RM617.37 million.

For the cumulative six months (1HFY19), net profit surged more than five-fold to RM470.33 million, from RM80.24 million for the same period last year, while revenue grew 22.45% to RM1.44 billion from RM1.18 billion.

The developer attributed the higher 1HFY19 earnings to one-off gains derived from the disposal of properties in Singapore that amounted to RM208.8 million, including a RM203.4 million gain it netted from the sale of Darby Park Executives Suites in Singapore.

Even without the one-off gain on disposal of its land in Bukit Selarong in Kedah and properties in Singapore during the first half of the year, Sime Darby Property said its core profit before interest and tax surged 162.7% to RM197.3 million in 1HFY19 compared to RM75.1 million in 1HFY18.