News by RHB Research Institute

The office segment will remain challenging for Sunway REIT, with Ranhill WorleyParsons Sdn Bhd and Suruhanjaya Koperasi Malaysia leaving Sunway Tower and Sunway Putra Mall this year.

Weak earnings largely due to the early stage of construction for Raintree Park 1 and Pearl Avenue 2, while a few other projects were nearing completion and handed over.

The property management segment, on the other hand, continues to be the saving grace for the group, having posted 8.7% y-o-y sales growth, mainly on contributions from its new shopping centres. Last year, Aeon opened a new store in Quill City Mall, Kuala Lumpur, and two new malls in Bukit Mertajam and Taiping.

We believe that the REIT should focus on filling up its vacant spaces in Axis Business Park and Axis Eureka (which currently have occupancy rates of below 60%), as this could potentially boost  distribution per unit contribution by about 3.9 sen.

Barring any unforeseen circumstances, a formal sale and purchase agreement is expected to be signed within the next 60 business days. The acquisition will be funded through a combination of equity and debt due to MQREIT’s relatively high gearing of 0.43 times.

The Intermark Mall has a total net lettable area of 255,014 sq ft. We believe that the net yield of 6.1% for the three-year-old mall is fair, given its prime location along Jalan Tun Razak, and direct access to the Integra and Vista office towers.

Revenue grew a decent 2.9% y-o-y despite weaker market sentiment, underpinned by a positive rental reversion stemming from the refurbishment works completed in 2014 for Pavilion Kuala Lumpur (PavMall).

The prospects for the piling segment remain strong, backed by various mega infrastructure projects like mass rapid transit 2 (MRT2) and light rail transit 3 (LRT3) as well as a structural shift towards high-rise developments.

FY15 revenue growth of 18% y-o-y was mainly underpinned by the contribution from its new asset acquisitions during the year, and this has more than offset the absence of income from Axis Business Park, which remains untenanted post-refurbishments.

Revenue growth came mainly from improved contributions from Sunway Putra Mall (+291% quarter-on-quarter [q-o-q]), which was more than enough to offset the drop in rentals from Sunway Tower (-58% q-o-q), as the office tower’s occupancy rate fell to 21% from 67% in FY15.