Sunway REIT’s acquisition from Kwasa Properties Sdn Bhd, a wholly-owned subsidiary of the Employees Provident Fund of the 6 hypermarkets for a total cash consideration of RM520m is being positively by analysts.
MIDF views the acquisition as a possible expansion of the portfolio for the REIT manager with the proposed acquisition expected to complete in 4QCY23. The six hypermarkets are Giant Hypermarket Bandar Kinrara, Giant Hypermarket Putra Heights, Giant Hypermarket USJ, Giant Hypermarket Klang, Giant Superstore Ulu Kelang, and Giant Hypermarket Plentong. The six properties have an occupancy rate of 100% with a total gross floor area of 2.3 million sq.ft. The lessee for the properties is GCH Retail (Malaysia) Sdn Bhd on a triple-net master lease agreement.
The purchase consideration of RM520m is below the market value of RM593m which will give net unrealised fair value gain of
RM66m upon completion of the acquisition. The acquisition is earnings and DPU accretive as the total net property income (NPI) of the properties stood at RM42m in 2022 which translates into an attractive NPI yield of 8.1%. Sunway REIT intends to fund the acquisition mainly via bank borrowings. The gearing of Sunway REIT is expected to increase to 0.41x from 0.38x in FY22. Nevertheless, the house thinks that gearing to normalise as proceed from the disposal of Sunway Medical Centre is expected to be used to pare down borrowings. Recall that Sunway REIT proposed to dispose of Sunway Medical Centre for RM430m in December 2022.
MIDF makes no changes to its earnings forecast pending the completion of the acquisition. It also maintains the TP for Sunway REIT at RM1.73, based on the Dividend Discount model.
