We maintain BUY on Sunway REIT (SREIT) with revised fair value (FV) of RM2.08/unit from RM1.87/unit based on our DDM which has incorporated potential increase in rent from assets acquired recently. We expect better performance ahead from the retail segment through rent contributions from newly acquired assets, AEIs completed for Oasis at Sunway Pyramid Mall as well as the hotel segment from an increase in average rental per room of Sunway Resort Hotel. Our FV has taken into consideration a 4-star ESG rating with a 3% premium accorded.

• Earnings for FY25F/26F revised higher by 13.3%/12/8%. This is to reflect higher rental revenue from the retail segment.
• Results within expectations. 9MFY24 distributional income of RM249.2mil was within expectations accounting for 73.3% of our and 70% of consensus forecast.
• YoY. SREIT's distributional income rose by 1.4% in 9M24 due to an increase in gross revenue of 4% driven largely by the improved performance of malls under retail segment and the rent contributions from 6 hypermarkets which were acquired recently. This had offset the absence of rent from Sunway Medical Center (Tower A&B) after the disposal of the asset in Aug 2023.
• QoQ. Gross revenue climbed by 9.4% supported by higher revenue from the retail segment with a full quarters' rent contribution from the 6 hypermarkets recognised. Besides, rent for the hotel segment rose largely due to an increase in ARR by 2x to RM600 per night for Sunway Resort Hotel after completion of AEIs.
• Occupancy rates for asset under management steady. Retail/hotel/hotel occupancy rates continued to hold up at 97%/65%/81%. Meanwhile, occupancy rate for its industrial property (PJ 1) with committed tenancies is poised to rise from 32% to 60% by middle of 2025.
• Positive rental reversion for Oasis, the newly reconfigured retail space at Sunway Pyramid Mall. Oasis has opened in Nov 2024 with almost 100% occupancy of the reconfigured space (NLA of 260,000 sq ft reduced from 320,000 sq ft). On the positives, rental rate has more than doubled from an average of RM6.40 psf to RM16 psf, and the full year's positive rent increase will be reflected in FY25 earnings onwards.
• Distributional income poised to rise ahead. Higher rental income will be contributed by the completed acquisitions of 163 Retail Park in Mont Kiara and an industrial property in Prai, Penang (rental on triple net lease) in Oct 2024. Also, the acquisition of Kluang mall is nearing completion and expected to complete by end of FY24.
• SREIT currently trades at a compelling FY25F PE of 15.2x. Meanwhile, FY25F distribution yield of 6.6% is attractive vs. the 10-year MGS yield of 3.9% providing a spread of 270bps.

Source: AmInvest Research - 14 Nov 2024