SUNREIT has proposed to acquire a retail mall in Mont Kiara, Kuala Lumpur, for RM215.0m which is situated in a highly sought-after and high-income residential area. Hence, the mall is expected to be resilient and less affected by the supply of new malls. We believe SUNREIT is paying a fair price for the asset. We maintain our forecasts, TP of RM1.63 and OUTPERFORM call.

Acquisition of a tenanted property. SUNREIT has proposed to acquire a freehold prime retail mall, called “163 Retail Park” located in Mont Kiara, Kuala Lumpur for RM215.0m. Positioned 11 km from Kuala Lumpur City Centre, Mont Kiara is a sought-after residential area for expatriates and affluent families in the upper-middle income group. The property features a gross floor area of 76k sq m spread across seven stories, including a net leasable area (NLA) of 23k sq m (or 255.5k sq ft). Currently, it is at a 94% occupancy rate.

Attractive price for premium location. The acquisition cost of RM215.0m translates to RM841/sq ft. We believe this is a fair price, as compared to past transactions of close proximity malls in the last decade at RM774/sq ft, or at an 8% premium, as the mall is located in densely populated and affluent well-established neighbourhood. Hence, we are positive in the acquisition as its suitable location should support sustainable occupancy rate as well as rental earnings. At an anticipated 6.5% yield from this acquisition, this should translate to an additional RM14m in net profit to SUNREIT, which would increase our FY24F earnings by 4%.

Forecasts. We maintain earnings for now, pending the release of the upcoming full year earnings.

Maintain OUTPERFORM and TP of RM1.63. Our TP is based on our FY24F DPU of 10.6 sen against an unchanged target yield of 6.5% (derived from a 2.5% yield spread above our 10-year MGS assumption of 4.0%). The low yield spread reflects SUNWAY’s diversified asset portfolio in key urban regions. We reckon that the group’s brand equity also benefits greatly from its affiliation to the Sunway conglomerate. There is no adjustment to our TP based on ESG of given a 3-star rating as appraised by us (see Page 4). SUNREIT is one of our sector Top Picks.

Risks to our call include: (i) bond yield expansion, (ii) lower-thanexpected rental reversions, and (iii) lower-than-expected occupancy rates.

Source: Kenanga Research - 30 Jan 2024