Sunway-REIT’s property buy buoys yield mix

TA Research said upon completion of the proposed acquisition, Sunway REIT’s assets under management will reach RM8.9bil.

PETALING JAYA: Sunway Real Estate Investment Trust’s (Sunway-REIT) proposal to buy its third industrial property in Bukit Tengah Industrial Park in Prai, Penang, will not only be yield-accretive, but will also expand its asset portfolio.

Analysts are positive on the deal as the industrial property is projected to generate an initial net property income (NPI) yield of 7.6%.

“We are positive on this deal as not only does it have an attractive yield but it also strengthens Sunway-REIT’s already diverse asset portfolio mix, as the services, industrial and others segment will comprise 9% of total asset portfolio upon completion of this acquisition,” Hong Leong Investment Bank (HLIB) Research said.

Sunway-REIT announced on Dec 18 that its trustee RHB Trustees Bhd had inked a conditional sale and purchase agreement with Best Corridor Venture Sdn Bhd to acquire an industrial property in Prai, Penang, for RM66.8 mil.

The property, which is strategically located within the Bukit Tengah Industrial Park, is adjacent to Juru Auto City. It is also in proximity to Sunway-REIT’s existing properties in Penang, about 12km from Sunway Carnival Mall and Sunway Hotel Seberang Jaya.

The property, sitting on 10.4 acres land with a leasehold tenure expiring in 2052, has a gross floor area of 307,487 sq ft.

It is fully occupied by reputable multinational tenants: Premium Sound Solutions, a Belgian sound products manufacturer; a Japanese logistics company and an American information management services company.

“The NPI coming from this industrial property is expected to be around RM4.7mil. This deal is yield-accretive when stacked against Sunway-REIT’s financial year (FY22) NPI portfolio yield of about 5.4%,” HLIB Research added.

It estimated an earnings per unit for FY24 and FY25 to increase 0.7% and 3.6% respectively if the acquisition is completed by the third quarter of 2024 (3Q24) and begin contributing by 4Q24.

HLIB Research said the gearing is expected to slightly increase from 37.4% (as at 3Q23) to 37.8% following the completion of the exercise.

It is reaffirming a “buy” call with a target price of RM1.89 based on FY24 dividend per unit (DPU) on targeted yield of 5.3%.

Similarly, TA Research is maintaining its earnings forecasts and “buy” call with a target price of RM1.75, pending the completion of the acquisition.

Its target price is based on a target yield of 6% to its 2024 DPU projection of 10.5 per unit.

“The acquisition price of RM147.45 per sq ft for the factories in Bukit Tengah Industrial Park is considered fair, given the asking price of RM130 to RM260 per sq ft for similar-sized factories,” the research house said.

It added that upon completion of the proposed acquisition, Sunway REIT’s assets under management will reach RM8.9bil.

“However, due to the relatively small size of the asset and its limited impact on earnings, we are neutral on this acquisition.

“Assuming the property starts to contribute to Sunway REIT’s earnings from 4Q24 onwards, the proposed acquisition is projected to increase our earnings forecasts by 0.3% in FY24 and 1.3% in FY25,” TA Research added.

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