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SunCity REITS May Be Delayed Again

KUALA LUMPUR: Sunway City Bhd’s real estate investment trusts (REITS) are expected to be delayed again this year due to current weak market sentiments and cautious property sector outlook, says a local research house.


HwangDBS Vickers Research said on Thursday the delay had been largely been factored into SunCity’s share price (down 53% year-to-date vs Malaysian property sector’s decline of 39% YTD, KLCI down 28%YTD).


However, the delay should allow SunCity to realise better value from its property investments, it said.


“We believe SunCity-REIT would likely be listed in Malaysia (instead of Singapore),” it said.


HwangDBS Vickers said the factors being the largest listed REIT in Malaysia with around RM3bil asset size while the assets are all based in Malaysia and the recent positive policy changes to improve Malaysian REITs’ competitiveness viz-a-vis regional peers.


SunCity would likely maintain a 33% stake in SunCity-REIT, while we expect GIC to take up a sizeable stake as well.


SunCity-REIT’s yield however, was expected to be higher than the initial targeted 6% as MREITs are currently trading at 9.7% FY09F yield versus 10-year sovereign bond rate of 4.7%.


Assuming SunCity-REIT would be launched in CY09 at 7.7% yield, the research house expected a one-off gain on disposal of RM29mil (based on RM44mil surplus but net off for SunCity’s 33% stake in REIT) or 18% of FY10F earnings.


There would also be RM686mil net cash proceeds (RM1.10/share, fully diluted) which could be used to pare down borrowings, land bank acquisition and/or returned to shareholders.


The research house said its earnings estimates have yet to include any impact from the potential REIT.


“Although our expected yield of 7.7% is at a premium to the sector, we believe it is justifiable given SunCity-REIT’s size and potential RM3bil pipeline.

“SunCity-REIT has the potential to double its asset size to RM5.5b, almost on par with some of the mid-size Singapore REITs (currently trading at 7.4-7.5% 09F yield),” it said.


HwangDBS Vickers Research applied a 7% yield to value Sunway Pyramid, based on Country Heights’ sale of Mines Shopping Fair (retail mall in Klang Valley) to CapitaLand in August 2007.



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