Successful Vaccine Rollout will Boost Sunway REIT Recovery Phase, Says CGS-CIMB Research

KUALA LUMPUR: A successful vaccine rollout in February may expedite a recovery phase for Sunway Real Estate Investment Trust’s (Sunway REIT) hotels and retail malls as the company expected to continue experiencing a prolonged tough period in the coming quarters.

CGS-CIMB Research analyst Sharizan Rosely said for its retail malls, the group does not rule out selective rental assistance in January to March 2021, and as such, potential revenue loss should be lower than the first Movement Control Order (MCO) enforced last March.

The research firm noted that only about 40 per cent to 50 per cent of Sunway REIT tenants are operating.

Sunway REIT’s retail and hotel segment in first-half of its financial year constituted 64 per cent of total group net property income (NPI).

Further, Sunway REIT’s 80 per cent to 90 per cent retail mall footfall recovery rate compared to pre-MCO levels and 35 per cent hotel occupancy rates achieved at end-December did not look sustainable for the financial year ending December 31, 2021 (FY21), in view of the spike in Covid-19 cases.

Sunway REIT’s portfolio rental reversion stood in marginally negative territory at end-December 2020, CGS-CIMB Research noted.

In the first half (1H) FY21, revenue for retail and hotel assets fell sharply by 37 per cent to 77 per cent year-on-year (YoY) as business conditions remained challenging.

The office segment appeared resilient with 22 per cent YoY growth in revenue.

CGS-CIMB Research has cut Sunway REIT’s FY21 to FY23 earnings per acre by 12 per cent to 22 per cent, reflecting weaker rental income and lower NPI margins of 70 per cent to 75 per cent due to the prolonged earnings risk from MCO 2.0.

“We cut our target price to RM1.39. Upside risks include recovery in retail and travel sentiments from the vaccine rollout.

“Downside risk include prolonged negative impact from MCO 2.0. We retain our Hold call given the uncertain recovery prospects. FY21 to FY23 dividend yields of 3.7 per cent to 5.1 per cent should be supportive of share price,” the firm said.

Meanwhile, Sunway REIT said the outlook for FY21 remains challenging with uncertainties surrounding the roll-out of vaccine in the 1H of 2021 and success in containing the transmission of the virus.

The company said earnings are cushioned by its diversified asset portfolio and strengthened by the expected new income contribution from its newly-acquired The Pinnacle Sunway.

Chief executive officer Datuk Jeffrey Ng said the Sunway REIT continues to maintain a cautious outlook in the near term, following the spike in Covid-19 cases and reinstatement of MCO on January 13, 2021.

“We are currently working even more proactively with our tenants in these trying and uncertain times, to address how best to help them tide through.

“We will remain vigilant to balance the wellbeing of our tenants, and at the same time, ensuring our financial capacity and flexibility is in optimum position via our prudent cost containment and capital management measures,” Ng said in a statement yesterday.


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