KUALA LUMPUR (June 12): The upcoming 8% sales and service tax (SST) on rentals is expected to constrain rental reversion potential for Sunway Real Estate Investment Trust (KL:SUNREIT), CIMB Securities said.

“This is likely to increase tenants’ operating costs and may limit SunREIT’s rental reversion in the near term as businesses adjust to the new tax framework,” it noted.

Its estimates suggest that a one-percentage-point reduction in projected rental reversion for SunREIT’s retail assets could trim FY2026 core net profit and dividends per unit by roughly 1%.

Additionally, the broader SST coverage, effective from July, may dampen consumer sentiment, potentially impacting SunREIT’s variable rent component, which contributes approximately 15% of total rental income.

The opening of Sunway Square Mall, situated near Sunway Pyramid Mall, in September could heighten competition in the retail segment amid subdued consumer confidence, the research house added.

The firm has downgraded SunREIT to “hold” from “buy” despite an unchanged target price of RM2.11, following a 21% gain in the stock since its "buy" call in May last year to RM2.13 at Thursday's market close.

CIMB anticipates a weaker second half of this year, as major festivities were front-loaded in the first quarter. Persistent inflationary pressures may further weigh on variable rent contributions, it added.

Nevertheless, it noted that SunREIT’s unit price remains supported by a forecasted distribution yield of 5.2%-5.6% for FY2025-FY2027. The 12-month forward yield spread over the 10-year Malaysian Government Securities stands at 2.0%, in line with its 10-year historical average, CIMB said.