Investment Highlights

• We maintain BUY on Sunway REIT (SREIT) with a higher fair value (FV) of RM1.87/unit (vs. RM1.86/unit previously) after accounting for contribution from the newly acquired 163 Retail Park. Our revised dividend discount model (DDM) also incorporates a premium of 3% for its 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 a conditional sale and purchase agreement with YNH Property’s wholly-owned D’Kiara Place to acquire a 7- storey retail shopping centre in Mont Kiara known as 163 Retail Park for RM215mil cash.

• We believe that the acquisition price of RM215mil is appealing, as it reflects an 8% discount compared to the total development cost incurred by YNH Property for 163 Retail Park, which amounted to RM234.7mil, inclusive of land, building and renovation costs.

• 163 Retail Park boasts a strong occupancy rate of 94%, hosting a diverse range of tenants including grocers, food and beverage outlets, specialty stores, health and beauty establishments, and children's edutainment facilities. Jaya Grocer serves as the primary anchor tenant for the mall.

• The proposed acquisition is expected to generate an initial net property income (NPI) of RM14mil, based on management’s estimated NPI yield of 6.5%.

• The acquisition will be wholly funded by debt. Upon completion of acquisition in 2QFY24, SREIT’s FY24F debtto-asset ratio will increase slightly to 0.43x from 0.42x.

• Based on our assumptions, the contribution from the property is estimated to be RM3.7mil to SREIT’s distributable income in FY25F-FY26F (Exhibit 1). Hence, we raise our FY25F distributable income by 1% after accounting for the contribution from this newly acquired retail 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.

• Upon completion of the proposed acquisition, SREIT’s property value will increase by 2.4% to RM9.1bil.

• The property's location is strategic, surrounded by an affluent captive market catchment with high purchasing power within the vicinity of Mont’ Kiara, Hartamas and Segambut.

Source: AmInvest Research - 30 Jan 2024