How is Sunway REIT supporting the decarbonisation of Asia’s real estate?

Real estate investment trusts (REITs) serve as an important conduit for capital to flow into the property sector. As investors and property managers become more focused on the environmental impact of the assets in their portfolios, REITs are increasingly turning to sustainable finance to signal their commitment to change and drive returns for their stakeholders.

Sunway REIT, part of one Malaysian conglomerate Sunway Group which encompasses 13 business divisions and one of the largest diversified REITs on the main market of Bursa Malaysia Securities Berhad, is increasing its efforts to cut carbon emissions. Its portfolio of 20 assets comprises five retail properties, six hotels, five offices, two industrial properties, a medical centre and a university campus, with a combined value of MYR9.1 billion (USD1.99 billion), as of the end of 2022¹.

In June 2023, Sunway REIT executed its first sustainability-linked cross-currency swap (CCS) in Malaysia, with HSBC acting as the lender and swap bank. The MYR200 million one-year transaction converts a floating-rate foreign-currency loan into fixed-rate obligations in Malaysia Ringgit, allowing Sunway REIT to hedge both the currency and interest rate risk to smooth its cash flow projections.

• Increasing the amount of renewable energy generated by solar panels installed across the REIT’s properties; and
• Reducing the weighted average building energy intensity at the Sunway Pyramid Mall, Sunway Carnival Mall and Sunway Putra Mall within its portfolio, measured in kilowatt hours per square metre of occupied gross floor area per year.

HSBC worked closely with Sunway REIT to ensure that the targets align with the trust’s overall sustainability objectives and are sufficiently ambitious to drive further improvements in the portfolio. Sunway REIT’s performance against each KPI will determine the post-swap cost of the financing, with a pre-agreed discount rate for each KPI, contributing to potential interest savings.

“Our collaboration with HSBC on the sustainability-linked CCS enables us to convert more than 90% of Sunway REIT’s borrowings into sustainable finance. The transaction ensures a positive environmental impact while incentivising Sunway REIT with lower financing costs,” says Dato’ Jeffrey Ng, Chief Executive Officer of Sunway REIT Management Sdn Bhd.

“The REIT industry has increased its focus on becoming more sustainable, particularly as investors put more focus on ESG issues. This has accelerated the need to change the nature of capital and direct it in more sustainable ways for the sector.” says Christina Cheah, Head of Global Banking, HSBC Malaysia.

“By linking the CCS to specific sustainability performance targets, we have created a customised structure which includes direct, measurable incentives for the client to achieve its sustainability ambitions. The product marks a further step in the development of Malaysia’s sustainable finance market and in Sunway REIT’s ambition to fulfil its ESG goals,” she adds.

Influencing behaviour

The CCS trade followed other sustainability landmarks for Sunway REIT since late 2021, when it became the first Malaysian REIT to issue a sustainability-linked bond.

What’s more, Sunway is encouraging its tenants to take action. In 2022, it became the first Malaysian REIT to introduce a green lease partnership programme² for all its tenants and hotel lessees, with the aim of achieving 100% participation by 2030. Green leases require landlords and tenants to agree to environmentally-conscious practices, such as the use of energy-efficient technology or recycling services, and are quickly gaining traction across Asia’s property sector.

Sunway REIT has adopted a six-level waste management hierarchy and has been actively engaging with its closest stakeholders to divert waste away from the landfill. As a part of this, Sunway REIT has supported the #ZEROFOODWASTE initiative - a collaboration between Sunway and Kechara Soup Kitchen Society since 2017 - to distribute surplus food from buffets to the homeless and urban communities in need in Malaysia. In addition, food waste that is no longer edible will be collected from tenants and converted into compost with an on-site food composting machine. The compost is then used around Sunway City Kuala Lumpur’s for landscaping purpose and given away complimentary to Sunway Pyramid shoppers for use.

The trust and its managers are not stopping there. Sunway REIT has committed to achieve net zero emissions by 2050 and has an interim target to reduce residual emissions by 45% by 2030. Sunway REIT’s sponsor, Sunway Berhad, is among the first corporations in Asia, and the first in Malaysia, to implement an internal carbon pricing framework into its business to strive towards the net zero agenda.

With proven access to sustainable financing, Sunway REIT is well-placed to fund that transition and pass on the benefits to its investors. More broadly, by connecting Asia’s real estate industry with sustainable capital, the REIT sector has the potential to drive real change across the region.

Today we finance a number of industries that significantly contribute to greenhouse gas emissions. We have a strategy to help our customers to reduce their emissions and to reduce our own. Find out more: https://www.hsbc.com/who-we-are/our-climate-strategy