Due to resource allocation on our part, our coverage on
Sunway REIT was put on hold in early 2011. We are now reinitiating coverage
with a NEUTRAL recommendation, at a FV of RM1.25, based on a target yield of
5.7% on CY12 DPU. This target yield is based on the average current yield of
its two closest peers in term of assets value and market cap, namely Pavilion
REIT and Capitalmalls Malaysia. We think
the impending makeover of Sunway
Putra Mall (SPM) and potentially
yield accretive acquisitions as well as proactive capital management initiatives
will support the REIT’s future upside.
Briefly on the REIT.
Sunway REIT is a real estate investment trust formed to own and invest in a
diverse portfolio of income-generating real estate assets in Malaysia. It was listed
on the Bursa Malaysia Main Market on 8 July 2010. In April 2011, the REIT made its
maiden acquisition when it bought (by public auction) a mixed development known
as Putra Place comprising Putra Mall
(retail), Putra Tower (office) and Putra Hotel (hospitality), for a total cash
consideration of about RM513.9m. With 11 assets
in its stable worth about RM4.379bn presently, Sunway REIT is the
largest REIT in Malaysia (M-REIT) in terms of asset value, with an estimated
free float of 63%.
Acquisition potential
from blue-chip sponsor. Sunway REIT has right of first refusal with respect
to any properties to be disposed of by its sponsor, Sunway Bhd. The REIT is
expected to benefit from its close relationship
the widely recognized sponsor,
which has a large and diversified portfolio of properties as well as an
extensive development project pipeline. This clearly complements the REIT’s
acquisition growth catalyst should its sponsor dispose of properties that meet
the trust’s investment criteria. Backed by its huge assets base, the REIT can
easily borrow sizeable amounts for
its acquisitions before hitting
the statutory limit of 50%. With this being its greatest certainly, the REIT is
comfortably positioned to sustain its yield-accretive asset growth strategy.
Reinitiate with
Neutral; FV RM1.25. We
reinitiate coverage on Sunway
REIT with a NEUTRAL recommendation, at
an FV of RM1.25, based on a
target yield of 5.7% on CY12 DPU. This yield
target is based on the average current yield of its two closest peers in
terms of asset value and market cap, namely Pavilion REIT and Capitalmalls Malaysia
(CMMT), which are currently trading at
CY12 yields of 5.26% and 6.17% respectively. We think the successful
transformation of Sunway Putra Mall (SPM) and its future yield accretive
acquisitions will provide the future potential for the REIT, bolstered by its
proactive capital management initiatives.
Source: OSK188
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