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Friday, June 4, 2010

Sunway REIT to be Bursa’s largest

PETALING JAYA: Sunway Real Estate Investment Trust (REIT), which is slated for listing on July 8 on the main board of Bursa Malaysia, is set to become the largest REIT on the local stock exchange with a fund size of 2.78 billion units.

However, according to a report by OSK Research, Sunway REIT’s initial public offering (IPO) would be at a premium to other Malaysia REITs.

“Based on the Sunway REIT’s net asset value per unit (NAV/unit) of 97 sen upon listing, its price over NAV (P/NAV) was estimated to be at about 1x (based on the assumed IPO price of RM1/unit for the institutional offering).

“This is about what the other REITs are currently trading at on average,” said the report.

The REITs’ dividend yield was only expected at about 6.7% (based on forecast dividend per unit (DPU) of 6.7 sen), which was below the average 8.5% for other REITs, it added.

It said this could imply that Sunway City (SunCity) would be selling the properties to the REIT at a high valuation benchmark.

“Having said that, the low yield offered by Sunway REIT and the premium to be paid for those properties could be justifiable given that the trust will be the largest in Malaysia, with the largest free float of about RM1.6bil vis-à-vis any given REITs, and the unique prospects of those properties, which offer a relatively more defensive investment and yet potentially attractive long-term growth,” the report noted.

It added that Sunway REIT might potentially attract certain classes of investors with a defensive investment strategy, such as pension and insurance funds. “This has been proven by the fact that Sunway REIT very recently secured four large cornerstone investors (at 98 sen/unit) which collectively hold about 14% stake in the trust,” it said.

The investors are a Singapore sovereign wealth fund, the Employees Provident Fund, Permodalan Nasional Bhd and Great Eastern.

The report said a trading buy opportunity in SunCity with an adjusted price target of RM4.52 would be the biggest beneficiary of the deal if the properties were to be disposed off at such valuations.

“Based on conservative estimates, this will add a further 69.8 sen/share (or a maximum 99 sen, depending on the response to the book-building process for the institutional offering) to SunCity’s net asset, bringing it to about RM5.32/share,” it said.

It further added that pegging this against 0.85x to 0.90x (P/NTA), which is the average that its peers were currently trading at, the reseach house estimated that SunCity might likely trade in the range of RM4.52 to RM4.79 as the listing of Sunway REIT got closer to realisation.

HwangDBS Vickers Research said in a report that Sunway REIT’s yield looked “rich” at 6.9% versus the sector’s 8.5%, while rising interest rate environment could force yields higher.

However, the report said, the REIT should help SunCity unlock its investment properties’ value and lead to more efficient allocation of resources to boost return on average asset.

The report maintained a “buy” call on SunCity and target price of RM4.70, assuming no discount for property investment and 30% discount for property development.

By The Star

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