Sunway Real Estate Investment Trust (SUNREIT - 5176) stands as one of Malaysia's largest REITs, boasting a unique portfolio of strategically located assets. The recent acquisition of 163 Retail Park for RM215m in January 2024 will bring additional income for FY24. SUNREIT is poised for continued expansion as a significant proportion of its assets are currently operating at full capacity, contributing to our optimistic outlook. We raised our FY24 forecast upwards by 5.3% to RM386.9m. Based on a 95% payout ratio, we expect SUNREIT to distribute 11sen per unit for FY24- FY25, translating into yields of 7.1%. BUY with a TP of RM1.90 based on a target yield of 6% over FY24 DPU.

As of December 31, 2023, SUNREIT possesses a diverse portfolio of 19 properties, encompassing 5 retail properties (including one designated for redevelopment into a retail-centric tourist destination), 6 hotels, 5 offices, an education property, and two industrial properties, with a total property value of more than RM8.9bn. SUNREIT’s properties are primarily in Sunway City where its flagship retail property, Sunway Pyramid Mall, is located. Retail assets contributed 66% of FY23 total revenue and we foresee a positive outlook for the retail segment, driven by a resurgence in retail foot traffic and sales, both of which have exceeded the pre- pandemic levels.

Our positive stance is further supported by the acquisition of 163 Retail Park in Mont Kiara. The property boasts a 94% occupancy rate with over 100 tenants and brands, anchored by Jaya Grocer. With a substantial captive audience comprising of both locals and expatriates and backed by SUNREIT's strong branding and successful history in mall management, we believe there is an opportunity to elevate the mall into a premium lifestyle hub, thus making positive contributions to SUNREIT's future income. We expect the Hotel segment which made up of 13% of SUNREIT’s FY23 revenue to register stronger growth in FY24 following major refurbishments. The Hotel Segment’s occupancy rate rose to 64% in FY24 from 54% in FY23.

Additionally, Tourism Malaysia predicts that tourist arrivals in 2024 will exceed the pre-pandemic level of 26.1m visitors recorded in 2019. Such growth is anticipated from visitors particularly from China and India, facilitated by improved flight connectivity and the resumption of flights to Northeast Asia destinations. The recently implemented 30-day visa-free entry, effective from December 1, 2023, for visitors from China, India, Turkiye, Jordan, Saudi Arabia, Qatar, the UAE, Bahrain, Kuwait, Iran, and Iraq, is expected to further boost the tourism industry in Malaysia.

Source: Rakuten Research - 28 Feb 2024

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