Investment Highlights

• We maintain BUY on Sunway REIT (SREIT) with a higher fair value (FV) of RM1.86/unit (vs. RM1.84/unit previously)after accounting for contribution from the newly acquired industrial property in Penang. Our revised dividend discount model (DDM) also incorporates a premium for the 4-star ESG rating (Exhibits 4 & 5). The FV implies a FY24F distribution yield of 5%, at parity to its 5-year median.

• RHB Trustee, as the trustee for SREIT entered into aconditional sale and purchase agreement with Best Corridor Venture to acquire an industrial property located at Bukit Tengah Industrial Park, Prai, Penang for RM67milcash.

• The property has a gross floor area of 307,487 sqft. It is fully occupied by 3 reputable multinational corporations, namely Premium Sound Solutions (a Belgian soundproducts manufacturer), a Japanese logistics company and an American information management services company.

• The proposed acquisition is expected to generate an initial net property income (NPI) of RM5mil, translating to a NPI yield of 7.6% based on purchase consideration of RM67mil.

• The property is sited on a 10-acre land with lease hold tenure expiring on 22 October 2052. Following the completion of the acquisition, SREIT plans to extend the leasehold tenure of the land to 60 years (from 28 years) at a cost of RM4mil.

• After accounting for the potential payment for the leasehold extension premium, it is anticipated that the property will generate a NPI yield of 7%.

• The acquisition will be wholly funded by debt. Upon completion of acquisition in 3QFY24, SREIT’s FY24F debt-to-asset ratio will increase slightly to 0.42x from 0.41x.

• Based on our assumptions, the contribution from the property is estimated to be RM2mil to SREIT’sdistributable income in FY25F-FY26F (Exhibit 1). Hence, we raise our FY25F distributable income by 1% after accounting for the contribution from the newly acquired industrial property. We also make a marginal upward revision of <1% to our FY24F distributable income as the increased NPI will be offset by the acquisition fee.

Source: AmInvest Research - 19 Dec 2023