Further recovery for Sunway-reit on the cards

Reopening of borders, relaxed restrictions plus points

“The key variance to our estimate was mainly due to higher-than-expected rental income and lower-than-projected rental support given to tenants amid a strong pick-up in the retail sector.”

Aminvestment Bank Research

PETALING JAYA: The reopening of international borders and relaxation of pandemic-related restrictions will facilitate a normalisation in Sunway Real Estate Investment Trust’s (SUNREIT) income over the coming quarters.

Aminvestment Bank (Aminvest) Research said it forecasts a gradual recovery in the average occupancy rate for hotel properties to 48% in financial year 2022 (FY22) and 58% in FY23. The hotel average occupancy rate was 27.2% in FY21 and 71.5% in FY19.

However, the research firm does not expect a significant recovery in the vacancy rate as rising interest rates and inflationary pressure could weaken consumer spending for leisure travel.

SUNREIT reported a distributable income of Rm83mil in the first quarter (1Q) of FY22, which included the reversal of impairment loss of trade receivables of Rm2mil.

Aminvest said the results were above its and consensus expectations at 42% and 32% of full-year estimates, respectively.

“The key variance to our estimate was mainly due to higher-than-expected rental income and lower-than-projected rental support given to tenants amid a strong pick-up in the retail sector after the relaxation of movement restrictions,” it added in a report yesterday.

Subsequently, the research firm raised its distributable income estimates by 33% for FY22 and 8% for FY23.

Meanwhile, UOB Kay Hian (UOBKH) Research said it has adjusted earnings upwards by 17% for 2022-23 on the assumption of an increase in hotel occupancy and room rates; a marginal increase in retail rental reversion, and to factor in additional rental from completion of the expansion of Carnival Mall in Penang, which is expected in the second quarter (2Q22).

According to analysts, management has secured an occupancy rate of nearly 90% for the mall.

Elsewhere the refurbishment of its Sunway Resort Hotel would also further boost earnings. The research firm noted that footfall and tenant sales remained at pre-covid-19 levels since last quarter and going by this, the retail segment should recover gradually as rental assistance would also taper off.

As for the office segment, it showed resilience with net property income margin remaining resilient at 70% during 1Q (4Q21: 65%, 1Q21: 69%) – enhanced by Sunway Pinnacle, which started contributing following the completion of the acquisition in November 2020.

Amid the challenging outlook, it believes that SUNREIT would still able to weather the current office oversupply situation. UOBKH Research maintains a “buy” call with a higher target price of RM1.73, from RM1.55 before.

“SUNREIT offers attractive yields of at least 6.4% from 2022 onwards, backed by the recovery of the retail and hotel segments,” it said in a note to clients.