KUALA LUMPUR: Sunway Real Estate Investment Trust (Sunway REIT) is expected to challenge its competitors in the fairly saturated market with its RM158 million acquisition of Kluang Mall by enhancing the tenant mix and improving the shopping experience.
As a result, Kenanga Investment Bank Bhd (Kenanga Research) has raised its earnings forecast for the financial year 2025 (FY25) by 2 per cent and increased its target price to RM1.69 from RM1.65.
The firm noted that the retail mall market in Kluang is quite saturated, with competitors such as Kluang Parade (anchored by Parkson), AEON BiG Kluang, Econsave Kluang, and the soon-to-open Lotus's.
"We believe Sunway REIT will effectively compete by leveraging its extensive experience in managing malls across both major cities and smaller towns in Malaysia, thereby enhancing Kluang Mall's tenant mix and shopping experience," it said.
The mall, which has been in operation since 2008, is located within the town area, offering a net lettable area of 360,000 square feet.
It is currently 99 per cent occupied, with over 130 tenants, including anchors like Pacific Hypermarket and Pacific Departmental Store, as well as key tenants such as Brands Outlet, H&M, Uniqlo, Popular Bookshop, Texas Chicken, and KFC.
Kenanga Research noted that the acquisition comes with a net property income (NPI) yield of 6.8 per cent (or RM10.7 million per year), aligning with recent transactions like the 163 Retail Park (at 6.5 per cent).
"The acquisition is earnings accretive given Sunway REIT's funding cost is estimated at 4.5 per cent and valuation accretive as the NPI comes above our target yield for the company of 6.5 per cent.
"The acquisition will increase Sunway REIT's gearing of 0.38 times as of end-Mar 2024 to 0.39 times that is still highly manageable," it said.