We maintain BUY on Sunway REIT (SREIT) with an unchanged TP of RM2.08/unit based on our DDM. The proposed acquisition of AEON Mall Seri Manjung Perak is expected to be marginally accretive to FY25F NPI and distributional income with a slight increase in gearing ratio. We remain positive on SREIT with a higher distributional income in FY25F from the recent completed asset acquisitions, AEIs, and full year contributions from the increase in rental reversions of assets under portfolio. Our TP has taken into consideration a 4-star ESG rating with a 3% premium accorded.

• Marginal accretive to distributional income from the proposed acquisition of AEON Mall Seri Manjung Perak. SREIT has announced a proposed acquisition of a parcel of commercial land with 2 storey retail shopping centre (AEON Mall Seri Manjung) identified as PT15074, Mukim of Lumut, District of Manjung, State of Perak Darul Ridzuan, under title HSD 34532 from YNH Hospitality for a purchase consideration of RM138mil. The asset with an NLA of 427,919 sq ft has been leased out to Aeon Co. Indicative NPI yield is 6.5% (initially) rising to average of 6.9% over 12 years. The acquisition will provide a stable long term rental income to the group with the asset leased out an established retail group. Also, it is seen a consistent with the group's plan to raise the mix of its neighbourhood malls of the total retail assets towards 20% by FY27 from 12% in FY24. The acquisition is expected to be completed in 6 months' time and we estimate the impact to be marginally accretive to our FY25F NPI by 0.7% to RM636mil and an uplift to FY25F distributional income by 0.9% to RM417mil.
• Acquisition price seen as fair and will be fully funded by borrowings. Acquisition price for the asset proposed to be acquired is seen as fair with a discount of 4.8% from the market value of RM145mil. With the acquisition expected to be fully funded by borrowings, FY25F total debt is expected to rise by 3.2% to RM4.4bil leading to slight increase in gearing ratio to 43.9% from 43.1%.
• Higher revenue contributions in FY25F from the recent completed asset acquisitions, AEIs, and full year contributions from the increase in rental reversions of assets under portfolio. We project a higher gross revenue growth of 15.4% YoY in FY25F (4.8% YoY in FY24F) contributed by the full year rent contribution from the completed acquisition of 6 hypermarkets in Kinrara, USJ 1, Klang, Putra Heights, Ulu Kelang and Plentong in 1QFY24. Also, revenue will start to be contributed by the completion of the acquisitions of industrial property in Prai, Penang, Sunway 163 Mall in Mont Kiara and Sunway Kluang Mall, Johor. Besides, the full year's impact of the positive rental reversion of the Oasis, the reconfigured office space at Sunway Pyramid Mall is expected to the flow through the revenue and net property income in FY25F.

Source: AmInvest Research - 22 Jan 2025