Sunway REIT - FY12 within expectations

Period    4Q12 / FY12

Actual vs. Expectations

 FY12 realised net income (RNI) of RM191m was within expectations, making up 102% of the street’s FY12E RNI of RM187m and 103% of our RM185m. The reported FY12E earnings of RM420m included RM230m fair value gains, mainly from Sunway Pyramid. 

Dividends   4Q12 GDPS of 1.89 sen has been declared, of which 0.51 sen is non-taxable. FY12 GDPS amounted to 7.5 sen (5.1% yield) based on 100% payout vs. our FY12E of 7.2 sen.

Key Results Highlights

 YoY, FY12 RNI grew 14%, underpinned by a 7.5% organic growth from existing assets and stronger contributions from Sunway Putra Place (SPP). 

 The 4Q12 bottom line growth was flat QoQ albeit corresponding top line growth of 5%. Refinancing costs was incurred during the quarter due to SPP, resulting in a 47% surge in financing costs. 

 FY12 saw positive rental reversions of 13.3% in 3 years (driven mainly by Sunway Pyramid, Sunway Putra Mall and Sunway Putra Tower) with a stable occupancy rate of 98.6%. 

Outlook   SunREIT remains positive on its retail and hospitality segment but is cautious on the office segment due to oversupply condition here. FY13E CAPEX will amount to RM160m, which will be mainly for SPP Mall refurbishments, where it is scheduled to be closed in 3Q13. Management is also guiding that there could be potential new acquisitions this year. (Refer overleaf for details)

Change to Forecasts

 Immaterial changes to FY13-14E RNI of RM202m-RM207m or gross yields of 5.4%-5.5%, post-housekeeping. Our estimates already imputed SPP Mall’s ‘offline’ period.  

Rating  Downgrade to MARKET PERFORM

 Valuations are extremely stretched given the runup of quality defensive stocks. But the upcoming listing of IGB REIT and the potential REIT-ing of KLCC Property Holding’s assets will keep valuations at current lofty levels. We are looking to upgrade our call if there are new accretive acquisitions or a retreat in the share price.

Valuation    Maintaining TP of RM1.42 on targeted FY13E net yield of 5.0%. 

Risks   Retail sector risks. Sector derating if investors switch to higher beta developers.

Source: Kenanga