Analysts positive on SunREIT’s strategy in balancing its portfolio
KUALA LUMPUR: Sunway Real Estate Investment Trust’s (SunREIT) strategy in balancing its portfolio has been viewed positively by analysts as the move could benefit the REIT in the long run.
MIDF Amanah Investment Bank Bhd’s research team (MIDF Research) in a report, said: “Looking ahead, we expect SunREIT to continue to balance its portfolio in order to achieve earnings accretion in the long run.
“This may include further acquisition of more assets from the ‘others’ segment.”
It noted that currently, SunREIT owns The Sunway Medical Centre, an industrial asset in Shah Alam and the education property other than its retail, hotel and office segments.
“We are positive on this strategy as the long-term tenancy agreement from this category may buffer the income volatility of the hotel segment, thus providing better stability for the REIT,” it added.
Meanwhile, on SunREIT’s acquisition of its first education asset for RM550 million, MIDF Research said, of the full amount, RM340 million is funded through perpetual note programme (perps).
“We think that the coupon rate for the perps will be higher than its existing loan interest rates of slightly over four per cent but the purchase should still be earnings accretive as the debt to equity ratio is 38:62.
“We estimate that the new asset will make up about five per cent of Sun REIT’s total revenue for FY20F.
“Earnings contribution for FY19F is expected to be limited to two months. We also expect the one-off fees arising from the establishment of the perps to be minimal and will most likely be offset by the positive contribution of the asset,” it added.
On SunREIT’s full-year earnings expectations, MIDF Research said it expected the upcoming quarter core net income to be on par with the set of numbers in the previously corresponding period.
“We expect this to be supported by the positive rental income growth from Sunway Pyramid.
“Meanwhile, the improved office segment is offset by the weaker performance from the hotel segment. That said, the refurbishment work at Sunway Resort and Spa had come to an end towards end-2018 and we expect recovery in revenue from the hotel going forward,” it added.
All in, MIDF Research maintained its ‘buy’ call on the stock. It said: “We like SunREIT for its integrated asset cluster in a mature township and stable prospects from its crown jewel