News Sunway
REIT (SUNREIT) has proposed 1) the acquisition of Sunway Medical Centre (“SMC”)
for RM310.0m (same as market value); 2) placement of up RM320.0m at an issue
price; 3) to seek approval to increase existing approved fund size of up to
870.8m units. Proposals to be completed by 3Q13. The cash from placement of RM320m will be used
to fully fund acquisition of SMC and proposal expenses.
Comments
SMC’s initial term
net property yield of 6.1% is close to its portfolio’s average of 6.4% and
since SMC is only 6% of the enlarged investment property value of RM4.9b, we
believe its portfolio net yield will be maintained. Hence, this also implies
the asset value is fairly priced. However, retail asset (segment which has exposure
has reduced to 63% from 67%.
The new placements of
up to 20% of its fund size imply up to 262.30m new units. However, we believe they
will place out lesser units given substantial YTD share price performance while
they only need to raise RM320m. Assuming a placement price of RM1.45 (3% discount
to last 5-day VWAP assumption), only 220.69m new units need to be issued. Upon completing
both the placements and acquisition concurrently (we assume by 01/01/13), 3Q13
gearing should be lowered to 31% from 33%.
We are NEUTRAL as
there are no major GDPU accretions as FY13-14E GDPU increases by <1% each to
7.9 sen-8.2 sen (5.1%-5.3% gross yield)*. However, the proposals show the
groups ability to tap onto its parent’s strong asset pipeline and provide
greater absolute dividend growth potentials, whilst its market cap grows by c.
7% to RM4.5b. Consequently, SunREIT will become the second largest M-REIT oppose
to its current 4th largest by market cap or a boon to liquidity.
Outlook Expecting c.RM2.7b worth of asset injections
(e.g. Sunway University, Sunway Giza Shopping Mall) over the next 3-5 years.
Management mentioned they hope future asset injections will increase retail
exposure back to 67% as they intend to remain retail focused.
Forecast Increase in FY13E-FY14E RNI by 4.5%-8.9% post acquisition.
(Refer to overleaf).
Rating Maintain
MARKET PERFORM
The proposals are
minimally dividend yield accretive while its retail asset exposure, which has
the highest organic growth amongst other segments, has decreased. We may look
to upgrade our call if retail exposure becomes higher than pre-acquisition
ratios or if there are more yield accretive acquisitions.
Valuation Maintaining TP of RM1.51 based on targeted
FY13E net yield of 4.7%
Risks Retail sector risks. Sector de-rating if
investors switch to higher beta developers
Source: Kenanga
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