Sunway REIT ends FY22 on solid footing

KUCHING: Sunway Real Estate Investment Trust (REIT) reaped a core net income of RM336.6 million for its financial year 2022 (FY22) which came in within analysts expectation but slightly above consensus expectation, making up 106 per cent of consensus full year estimates.

Sequentially, 4QFY22 core net income was lower at RM82.1 million despite higher topline (12.3 per cent q-o-q) as earnings were dragged by higher property operating expenses and higher finance cost.

“On yearly basis, 4QFY22 core net income was higher at RM82.1 million, bringing cumulative earnings in FY22 to RM336.6 million. The stellar earnings in FY22 were mainly underpinned by higher contribution from retail and hotel divisions,” commented MIDF Amanah Investment Bank Bhd (MIDF Research)

“Net property income (NPI) of retail division more than doubled in FY22 due to lower rental support to tenants and contribution from Sunway Carnival new wing.

“Similarly, NPI of hotel division was higher due to reopening of Sunway Resort Hotel and higher hotel room occupancy following reopening of economy and country border.

“Meanwhile, contributions from office and other segments remained stable.”

Hong Leong Investment Bank Bhd (HLIB Research) recapped that Sunway REIT has 20 properties in its portfolio.

“We believe the footfall and tenancy sales for its shopping malls should remain buoyant in the first half of 2023, spurred by festive seasons and holidays. Rental reversion stood at positive mid-single digit in 2022 for its retail portfolio and management targets to achieve the same level of reversion in FY23.

“To note, 59 per cent of NLA from Sunway Pyramid is due for expiry in 2023, which we believe the renewal rate will be robust.”

Hotel segment continues to recover on a gradual pace. Barring unforeseen circumstances, the occupancy level of its hotel properties should slowly return to pre-pandemic level by 2024.

We believe the ADR for Sunway Resort Hotel (refurbishment due for full completion in 1Q23) should stay slightly above RM600 with targeted 70 per cent occupancy rate in 2023.

Although the positive impact may not be significant given its limited exposure to Chinese tourists, we think China’s border reopening should bode well for its hotel assets and the hospitality sector as a whole.

“While we are wary in view of the temporary earnings void attributed to the ongoing disposal of medical buildings, management is on the lookout for assets mainly from the industrial and services sectors with NPI yield above seven per cent versus six per cent from existing medical buildings.

“While pending the completion of medical buildings disposal exercise, we maintain our forecasts as results were broadly in line.”

MIDF Research finetuned its FY23 earnings forecast lower by 1.3 per cent to reflect loss of income from Sunway Medical Centre. Note that Sunway REIT announced disposal of Sunway Medical Centre (Tower A and B) in December 2022 and the disposal is expected to complete in 1HFY23.

“Looking forward, we remain positive on earnings outlook for Sunway REIT due to positive rental reversion outlook for retail segment.

“Besides, the reopening of Sunway Resort Hotel and higher tourist arrival should support earnings growth of hotel division.”