KUCHING: Analysts are positive on Sunway Bhd’s (Sunway) surprise move to dispose its Sunway Clio Property (Sunway Clio) to Sunway Real Estate Investment Trust (SunREIT).
Analysts also believe the disposal would have positive implications on SunREIT as the property has been reporting positive occupancy rate since its opening early last year.
According to a filing on Bursa Malaysia, Sunway had proposed the disposal of Sunway Clio, by its wholly-owned sunsidiary Sunway Forum Hotel Sdn Bhd for a cash consideration of RM340 million to SunREIT. The property is a 27-storey building that houses a 19-storey four-star rated hotel known as Sunway Clio Hotel, three-storey retail lots known as Sunway Pyramid West, and a six-storey podium car park as well as four-storey basement car park.
Sunway has also entered into hotel lease agreement with SunREIT to lease back Sunway Clio for an initial term of 10 years. The asset disposal is expected to complete in the fourth quarter of the fianncial year 2017 (4QFY17).
In a report, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) pointed out that Sunway Clio is located within the township of Sunway City, in close proximity to Sunway Resort Hotel & Spa.
“We are positive on the acquisition (by SunREIT) as Sunway Clio is enjoying high occupancy rates since its opening in February 2016. Note that Sunway Clio hotel is enjoying occupancy rate of 71.6 per cent while Sunway Clio retail registers occupancy rate of 88.2 per cent due to its strategic location in Sunway City,” it opined.
On Sunway’s side, the research team highlighted that the proceeds of disposal is expected to reduce its net gearing.
“We are positive on the disposal as we think that the disposal is timely to help bringing down net gearing of Sunway.”
Meanwhile, the research arm of Maybank Investment Bank Bhd (Maybank IB Research) believed that Sunway Clio would be able to sustain its positive occupancy rate due to its strategic location and its integration with Sunway City.
Elsewhere, it believed Sunway Pyramid West would remain a minor earnings contributor with an estimated FY19E revenue contribution of less than five per cent to SunREIT’s FY19E revenue – including the Sunway Clio acquisition.
All in, Maybank IB Research raised its forecast of SunREIT.
It said, “We raise our FY18/19E earnings forecasts by 0.6 and 1.4 per cent after factoring in the addition of Sunway Clio (six months contribution in FY18).”
As for Sunway, the research team said it is positive on the disposal of Sunway Clio.
“The disposal will help to lower Sunway’s net gearing to 0.53-folds (from 0.58-folds in end 2017) and recycle the capital for other businesses such as healthcare and property development,” it opined.
Maybank IB Research maintained a ‘hold’ call on Sunway, and a ‘buy’ call on SunREIT given its strong pipeline of new assets.
MIDF Research maintained a ‘neutral’ rating on Sunway. It pegged a ‘buy’ call on SunREIT and continued to like SunREIT for its quality retail assets namely Sunway Pyramid and Sunway Carnival which will support its earnings growth going forward.