PETALING JAYA: The acquisition of The Sunway Pinnacle is expected to lift Sunway Real Estate Investment Trust’s (Sunway REIT) earnings from as early as next year.
MIDF Research in a report yesterday said earnings may be lifted by 0.3% both in 2021 and 2022. “We think that the purchase is in line with Sunway REIT’s strategy to create a more diversified portfolio from being retail-focus previously. We believe the objective of this is to have a more stable income stream in the event of a slowdown in any particular sector.
“That said, we leave our earnings estimates unchanged pending more details in an upcoming briefing.”
Maybank Investment Bank Research (Maybank IB) meanwhile said it is raising its 2021 and 2022 earnings forecasts by 8% per annum, but is lowering net distribution per unit by 1% and 2% after incorporating acquisition and private placement proposals.
“We note that 10% (RM45mil) of the acquisition will be satisfied via Sunway REIT’s existing debt programme and the remaining via its proposed private placement exercise. Meanwhile, our 2020 to 2020 gross gearing is largely unchanged at 0.37 to 0.39 times.
“Nevertheless, we continue to favour Sunway REIT’s mid to long-term catalyst, which still come from its resilient key asset (Sunway Pyramid) and strong asset pipeline from its parent.”
On Monday, Sunway REIT announced that it was proposing to acquire The Pinnacle Sunway for RM450mil in cash from two of Sunway Bhd’s wholly-owned subsidiaries, namely Sunway Integrated Properties Sdn Bhd and Sunway Pinnacle Sdn Bhd.
Concurrently, Sunway REIT also proposed a private placement activity of up RM710mil and the establishment of a distribution reinvestment scheme. The Sunway Pinnacle is a 24-storey office building with 577,000 of net lettable area (NLA) and has a current committed tenancy of 100%.
Based on the asset’s gross rental income of RM36.4mil at end-2019, CGSCIMB said the acquisition price translated into a gross yield of 8.1% or, if based on the asset’s end-2018 net property income, a net yield of 7.6%.
“We are positive about the acquisition but it is not totally unexpected as it is in line with the group’s targets to diversify its portfolio.
“The new stream of rental income will also mitigate the weaker contribution from its retail malls (revenue loss from rental rebates) and hotel assets (subdued occupancy rates of below 30%), which have been hit by the Covid-19 outbreak and movement control order.”
Maybank IB meanwhile noted that changes in rental rates, occupancy rates, operating expenses and interest rates may lead to lower earnings for Sunway REIT. “About 10% of Sunway Pyramid’s NLA is due for lease renewal in 2020, while 57% of Sunway REIT’s borrowings are on floating rates, ” it said.
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