HLIB says Sunway REIT acquisition of Giant hypermarkets from EPF a positive

• In a note on Friday (March 17), the research house said it was “mildly positive” with Sunway REIT’s proposal to acquire six Giant hypermarkets/retail complex from the Employees Provident Fund (EPF) for a total cash consideration of RM520 million.

KUALA LUMPUR (March 17): Hong Leong Investment Bank (HLIB) Research has maintained its “buy” rating on Sunway Real Estate Investment Trust (Sunway REIT) at RM1.57 with an unchanged target price (TP) of RM1.87, based on FY2024 DPU (distribution per unit) on targeted yield of 5.3%.

In a note on Friday (March 17), the research house said it was “mildly positive” with Sunway REIT’s proposal to acquire six Giant hypermarkets/retail complex from the Employees Provident Fund (EPF) for a total cash consideration of RM520 million.

“These new properties will more than adequately fill up the rental void arising from the impending disposal of its medical buildings.

“Although Giant has ceased operations in USJ, we are not overly concerned about the possible termination of the lease agreement, as the tenant will need to pay rent for the remaining unexpired term of the lease agreement,” HLIB analyst Brian Chin Haoyan said in a note.

The analyst was also positive on the deal, as it is yield accretive with an expected net property income (NPI) yield of 8%, versus FY22’s NPI portfolio of 5.4%.

“However, we are a tad bit cautious on the deal,  as it will enlarge its portfolio exposure into the competitive retail sector, as compared to services (education and healthcare) and industrial sector.

“That said, we are still overall mildly positive on the overall deal, as the downside risk is compensated by a more attractive yield,” he said.

Post completion of the ongoing medical buildings disposal and the acquisition exercise, the research house forecasted that FY2023f/FY2024f EPU will be adjusted by -2.0%/+3.1% with gearing slightly increasing to 38.6%.

“After the factoring in the ongoing disposal and acquisition exercises, as well as the net changes in borrowings, gearing is expected to slightly increase from 37.6% to 38.6% (FY2022),” he added.