SUNREIT: Strategic Asset Disposal to Drive Long-Term Growth
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
Sunway Real Estate Investment Trust (Sunway REIT), through its trustee RHB Trustees Berhad, has entered into a conditional sale and purchase agreement to dispose of Sunway Hotel Seberang Jaya (SHSJ) for RM60 million cash. The transaction involves the sale of the 27-year-old, 202-room hotel in Penang to Sunway Medical Centre Penang Sdn Bhd, a related party.
Rationale for Disposal
The decision to divest SHSJ, which has been part of Sunway REIT’s initial hospitality portfolio since its 2010 IPO, stems from the asset’s aging facilities and its mature market positioning, leading to limited upside potential. The disposal price of RM60 million implies an exit cap rate of 5.3%, representing a 9.1% premium over the appraised market value of RM55 million. This strategic move is intended to unlock value and recycle capital into higher-yielding assets.
Future Redevelopment and Outlook
The net proceeds of RM59.5 million from the sale, after RM0.5 million in transaction expenses, will partially fund a new, purpose-built 192-room hotel. This new property, estimated to cost RM140 million, will be developed atop Sunway Carnival Mall and is targeted for completion by end-2027. The new hotel is expected to feature modern facilities, including a larger ballroom, infinity pool, and direct mall connectivity, leveraging the mall’s strong footfall and prime location to create stronger long-term value for the REIT. The existing hotel will continue operations until the new development opens, ensuring a seamless transition.
Financial Impact
The disposal is projected to generate a net gain of RM4.0 million, which will be reflected in FY28 upon completion. While the transaction slightly reduces portfolio value, its impact on gearing is negligible, with the ratio remaining at 37.8%. Pro forma FY24 DPU is expected to experience only a marginal dip from 9.66 sen to 9.58 sen. Overall, management views the move positively, aligning with Sunway REIT’s capital recycling discipline and long-term growth strategy by monetizing a mature asset and reinvesting in a modern, higher-yielding property.
Analyst’s Perspective
TA Securities maintains its Sell recommendation on Sunway REIT with an unchanged target price of RM2.28 per unit. The firm’s valuation is based on a CY26 target yield of 5.5% and a 3% ESG premium. This “Sell” call is purely valuation-based, as the 12-month forward yield spread over the 10-year MGS has compressed to approximately 200 basis points, suggesting limited upside potential at current levels.
