KUALA LUMPUR (Nov 6): RHB Research has maintained its “buy” call on Sunway Real Estate Investment Fund (Sunway REIT), with an increased target price (TP) of RM1.74 from RM1.60, as the REIT’s diverse property portfolio, especially its strong retail assets and recovering hospitality properties, are expected to drive earnings growth.

In a note on Monday, the research house highlighted the asset enhancement initiatives (AEIs) by Sunway REIT, where Sunway Pyramid Mall is in the midst of reconfiguring the space previously occupied by AEON, which comprised 11% of the net lettable area (NLA) and accounted for 2% of the mall’s revenue, to cater for a wider variety of higher-yielding tenants.

Notably, it will welcome Jaya Grocer as a new anchor tenant, and the AEI is expected to be completed in the fourth quarter of 2024 (4Q2024).

“Sunway Carnival, which opened its new wing in June 2022 (NLA rose to about 710,000 sq ft from 450,000 sq ft), is now undergoing the second phase of its AEI to refurbish the older wing. The AEI is expected to be completed by 2Q2025," it said.

Meanwhile, in the first half of 2023, hotel occupancy reached an average of 60%, a significant increase from 48% during the same period in 2022. It anticipates a gradual recovery in occupancy towards the pre-pandemic level of 70%, particularly for Sunway Resort after its renovation.

Regarding Sunway REIT's office spaces, the average occupancy rate is 83%, although Sunway Tower lags behind with only 27% occupancy. “We expect office properties to record low single-digit rental reversions, aside from Sunway Tower, which could see negative reversions to maintain or improve occupancy," says RHB Research.

The research house also believes that the financial year ending Dec 31, 2024 (FY2024) should be a strong year, as the hypermarkets could provide a high 8% net property income yield, and are on a long-term triple-net lease with fixed rental increments, although the deadline for acquiring six hypermarkets for RM520 million has been extended from end-September to end-November due to pending regulatory approvals.

Yet, the completed disposal of Sunway Medical Centre for RM430 million at the end of August will result in a loss of income (approximately 4% of FY2022 revenue) until the acquisition is finalised.

“Key risks include lower-than-expected occupancy and rental reversion, longer-than-expected delays in acquisitions, and higher-than-expected costs.” it added.

At the time of writing on Monday, Sunway REIT was trading at RM1.52 per unit, translating into a market capitalisation of RM5.21 billion.