Highlights

• We visited Sunway Putra Mall (SPM) to get a closer look of the mall after its soft launch on 28 May 2015.

• After approximately two years of refurbishment works, SPM has been finally re-opened with occupancy rate of 70% after all the tenants start operation on progressive basis while management remains committed to bring the occupancy level to 100%.

• Total capex spent was approximately RM307m which involves creation of approximately 71,000 sq ft of additional net lettable area (NLA), bringing total NLA to approximately 560,000 sq ft.

• The design for SPM was inspired by South-Africa’s Sun-drop Diamond and positioned itself as an urban-chic li festyle mall. SPM will house over 300 outlets.

• It has a strong catchment population of 2m within 25km radius which could potentially attract crowd from Jalan Duta, Jalan Kuching, Bangsar, Bukit Tunku and Mont Kiara. In addition, we also think that SPM will be able to attract shoppers nearby as it is just walking distance to PWTC and Sri Pacific Hotel.

• We noted that there are linkages which direct shoppers to the mall, including the newly-build escalator from PWTC LRT station and coming soon for Villa Put ri, an entrance from the elevated walkway in front of the mall and also an escalator connecting Seri Pacific Hotel and the mall, which is currently in progress.

• In view of current challenging outlook on retail industry, we think mall that cater for mid-income earners will perform slightly better as compared to super-prime retail mall.

Risks

• Highly reliant on Sunway Pyramid
• Intensifying competition for assets and tenants, especially for office segment.

Forecasts

• Unchanged as we al ready factored in the contribution in our financial model. We may revisit our forecasts when occupancy reaches 100%.

Rating

HOLD , TP: RM1.60

• Posi tives: Has the largest acquisition pipeline amongst MREITs; strong backing from Sponsor; well-diversified across various segments with low tenant concentration; and synergy with Sponsor’s townships.

Negatives

• Still heavily reliant on Bandar Sunway, which will take time to change; persistent weakness in the office segment due to oversupply of new office space.

Valuation

• Maintain HOLD recommendation on the equity and unchanged TP of RM1.60.
• Targeted yield at 6.2% based on historical average yield spread of Sunway REIT and 7-year MGS.

Source: Hong Leong Investment Bank Research - 26 Jun 2015