Sunway REIT hotels to lead earnings growth in FY24

KUALA LUMPUR: Sunway Real Estate Investment Trust’s (SunREIT) positive earnings trend is expected to continue in the coming year, underpinned by growth in the hotel segment.

The research firm said the REIT’s hotel segment is expected to continue improving in FY24 as domestic leisure, corporate and MICE activities increase, along with a return to normalcy in international and domestic tourist arrivals.

Kenanga, which has an “outperform” recommendation on SunREIT, raised its target price to RM1.72 from RM1.62 previously, noting that the REIT’s business operations have already surpassed pre-pandemic levels.

It said its valuation was rolled over to FY25 wiht a distribution per unit of 11.2 sen, against an unchanged target yield of 6.5%.

“The low yield spread reflects Sunway’s diversified asset portfolio in key urban

regions.

“We reckon that the group’s brand equity also benefits greatly from its affiliation to the Sunway conglomerate,” said the research firm.

Kenanga also said Sunway Pyramid seeks to introduce more speciality-centric stores via the ongoing refurbishment of a former anchor tenant’s space, which is targeted for completion by end-FY24.

“The new and existing tenants could elevate rental yields going forward (with 62% of its NLA apparently being reserved so far),” it said.

It added also that the recent acquisition of 163 Retail Mall could present several opportunities for the group in optimising its tenant trademix and potentially uplift its net yield of 6.5%.

In its recently announced FY23 results, Kenanga said SunREIT’s FY23 core net profit of RM318.3mil met its full-year forecast but missed consensus estimates by 6%.

“The final distribution of 4.68 sen per unit led to a full-year payment of 9.3 sen, which exceeded our anticipated 8.8 sen,” it said.

Kenanga said the REIT’s FY23 revenue rose 10%, primarily driven by the retail segment, which benefited from consistent retail sales and foot traffic across all its retail malls.

Revenue for the hotel segment jumped 38% on an improved occupancy rate of 64% with full room occupancy at Sunway Resort Hotel since July 2023.

However, net property income margin saw a 3.2 percentage point compression to 73.6% on higher utilities cost while financing costs rose on a higher interest rate cycle.