Sunway Real Estate Investment Trust (SREIT - 5176) is one of the largest REITs in Malaysia and has a distinctive portfolio with assets that are strategically located. We expect SREIT’s earnings to rebound strongly with the reopening of China’s economy and inflow of tourists into Malaysia. FY22 quarterly report saw a huge jump in distributable income where it improved by more than 100% YoY. We believe SREIT will continue to grow as most of the assets are operating at full capacity. We revised our FY23 distributable income upwards by 13% to RM351.5m and introducing FY24’s at RM367.3m. Based on a 95% payout ratio, we expect STREIT to distribute 9.7sen and 10.2sen per unit for FY23-FY24, translating into yields of 6.3% and 6.6% respectively. BUY with a TP of RM1.80 based on a target yield of 5.5% over FY23 DPU.

SREIT’s key assets located in Sunway City are Sunway Pyramid Shopping Mall, Sunway Resort, Sunway Pyramid Hotel, Sunway Clio Property, Menara Sunway, Sunway Medical Centre (Tower A & B) and Sunway university & college campus. Sunway REIT owns four properties in Kuala Lumpur, namely, Sunway Tower, Sunway Putra, consisting of Sunway Putra Mall, Sunway Putra Hotel and Sunway Putra Tower. In the Industrial & Others segment, Sunway REIT owns Sunway REIT Industrial – Shah Alam 1 in Section 23, Shah Alam, which is a prime industrial hub, that is predominantly occupied by established multinational logistics and manufacturing companies.

Retail assets have achieved average occupancy rate of 96% in FY22 and the numbers are improving from time to time. We expect outlook for retail segment to remain positive, underpinned by strong retail footfall and retail sales which have recovered to pre-pandemic level. Our positive stance is further supported by the returning of China’s tourists, gradual pick up in international travelling plus new income contribution from the new wing of Sunway Carnival Mall following its launch in June 2022.

Occupancy rates for the hotel segment has improved significantly supported by domestic demand. Additionally, Sunway Resort Hotel has reopened its refurbished rooms progressively since May 2022 and has opened a total room inventory of 315 (Sept 2022: 238 rooms) out of 460 total rooms. The anticipated full inventory of rooms is expected by 1QFY23. We reckon the hotel segment would see a strong recovery as the post-pandemic situation improves.

Meanwhile for the office segment, the outlook will remain stable as businesses are operating at full capacity. The Corporate Suite@19, a 30,000 sq.ft. of newly completed office space at Sunway Resort, will further strengthen the income base of the office segment.

Source: RHB Securities Research - 1 Mar 2023