Sunway REIT’s recovery for hotel, retail segments remain bleak


SUNWAY Real Estate Investment Trust’s (REIT) recovery for its hotel and retail segments would continue to be weighed down by bleak industry outlook due to the Covid-19 pandemic.

Hong Leong Investment Bank Research, in a research note yesterday, stated that the group’s hotel segment is expected to be weak in the near term due to the subdued hospitality industry along with the temporary closure of Sunway Resort Hotel that has been undergoing refurbishment since July 2020 and is expected to be between 12 and 24 months.

“We expect the retail segment to improve gradually upon relaxation of the Movement Control Order (MCO) restrictions.

“As for its office, industrial and other segments, they are expected to remain stable on the back of strong occupancy and resilient income base,” its analyst Farah Diyana Kamaludin stated in a note yesterday.

The firm slashed its forecast for financial year 2021 (FY21) until FY23 by 11%, 6.3% and 6% respectively, reflecting a softer outlook in both segments.

It maintained its ‘Hold’ recommendation on Sunway REIT with a lower target price (TP) of RM1.48 from RM1.65 based on FY22 distribution per unit on targeted yield of 5.1% derived from two- year historical average yield spread between Sunway REIT and the 10-year Malaysian Government Bond.

Public Investment Bank Bhd added that Sunway REIT’s net profit of RM33.5 million for its second quarter ended Dec 31, 2020 (2QFY21) came in weaker than expected which was dragged by the pandemic-induced slowdown that affected the group’s assets mainly on retail and hospitality.

“With the change of its financial year-end to December from June, we now expect 18-month FY21 net profit of RM267.5 million from RM173.3 million previously,” its analyst Tan Siang Hing stated in a note yesterday.

The investment bank maintained its ‘Neutral’ call on Sunway REIT with a lower TP of RM1.55 from RM1.65 previously as it imputed a higher adjusted risk premium.

The group’s retail segment recorded a gross revenue of RM56.8 million in 2QFY21, down 47% year-on-year (YoY) mainly due to rental support for affected tenants and lower carpark income during the Conditional MCO enforced in Kuala Lumpur and Selangor since Oct 14, 2020.

“With the current MCO in place until Feb 18 and the worrying high level of daily cases, we believe consumer sentiment could remain weak in the near term which could further dent retail earnings,” it said.

The group’s hotel revenue was down 65% YoY at RM7.9 million, but was partially cushioned by guaranteed income accrued for the Sunway Clio property during the quarter.

Sunway REIT’s office segment remained steady with a year-to-date gross revenue of RM25 million, an increase of 22% YoY, contributed by the new income of RM4.1 million from Pinnacle Sunway acquired on Nov 20, 2020.