Acquiring AEON Mall Seri Manjung for RM138mn

Sunway REIT has entered into a conditional sale and purchase agreement (SPA) with Kar Sin Berhad and YNH Hospitality Sdn. Bhd., the subsidiaries of YNH Property Berhad to acquire a retail asset known as AEON Mall Seri Manjung located in Perak for RM138mn. The deal is expected to be completed within 6 months from the SPA.

Strategically located in the heart of Seri Manjung, this two-storey shopping complex boasts a gross floor area of approximately 681,570 sq. ft. and a net lettable area of 427,919 sq. ft., complemented by 2,592 car park bays. Since its opening in September 2013, AEON Mall Seri Manjung has been the leading retail destination in the Manjung district, benefiting from a sizeable and mature catchment area. The property is fully leased to a single tenant, AEON Co. (M) Bhd., a reputable Japanese retail group in Malaysia. This master lease arrangement ensures a steady rental income stream for Sunway REIT over the next 12 years.

See Appendix 1 & 2 for more property information.

A Decent Yield of 6.5%

Management expects the proposed acquisition to generate an initial net property income (NPI) yield of approximately 6.5% based on the purchase consideration. This stands favourably against Sunway REIT's property portfolio yield of 5.7% in FY23. In addition, an independent market valuer appointed by Sunway REIT appraised the property's market value at RM145mn, and the purchase consideration represents a discount of approximately 4.8% to this value.

In terms of funding, Sunway REIT raised RM500mn in October 2024 through its inaugural rated sustainability-linked perpetual securities, classified as equity. In 4Q24, the REIT also completed the acquisition of three assets worth a combined RM439.8mn. Considering these developments, we estimate Sunway REIT’s net gearing could reach approximately 45%, assuming the proposed acquisition is fully financed through bank borrowings. While this gearing level remains below the statutory cap of 50%, we do not discount the possibility of Sunway REIT undertaking a private placement to avoid overstretching its balance sheet and to position itself for future acquisitions.

Our View

Upon successful completion of the proposed acquisition, Sunway REIT's assets under management will increase to RM10.5bn. This aligns with Sunway REIT's TRANSCEND 2027 target of growing the total property value to RM14-15bn by FY27.The acquisition of AEON Mall Seri Manjung enhances Sunway REIT’s presence in the northern region, expanding its retail portfolio in the area to three assets. The Manjung district is poised for significant growth, supported by the near completion of the West Coast Expressway (94% completed), which will greatly enhance connectivity and accessibility. Furthermore, transformative initiatives like the Lumut Maritime Industrial City (LuMIC) project are expected to drive substantial foreign direct investment and local investment, fostering economic expansion and social development across the region.

We understand that the property presents multiple growth opportunities, including a sizable parcel of land currently utilised as an open car park, offering strong potential for future expansion and development. Moreover, if the master lease is not renewed in the future, Sunway REIT could leverage selfmanaged operations to strategically optimise the tenant mix, enhance the mall's appeal, and unlock higher property income.

Overall, we view the proposed acquisition positively, driven by the asset's strategic location, reasonable pricing, and strong growth potential, which includes expansion opportunities and the flexibility to optimise the tenant mix for enhanced income.

Impact

Assuming the property starts contributing to Sunway REIT's earnings in 2H25, the proposed acquisition is expected to marginally enhance our FY25 and FY26 earnings forecasts by approximately 0.7% and 1.4%, respectively. However, we will maintain our current earnings forecasts until the acquisition is finalised.

Recommendation and Valuation

We maintain a Buy recommendation on Sunway REIT with an unchanged TP of RM2.08/unit, based on a CY25 target yield of 5.5% and a 3% ESG premium.

Source: TA Research - 22 Jan 2025