PETALING JAYA: Sunway Real Estate Investment Trust (Sunway-REIT) is cautiously optimistic about its 2023 outlook, underpinned by a stable gross domestic product (GDP) growth projection of between 4% and 5%.

The investment manager said its prospects are further supported by the expectation of sustained growth momentum of the retail segment of its business, further recovery in the hotel division, full year income contribution from the new wing of Sunway Carnival Mall in Penang and from Sunway Resort Hotel upon full completion of its refurbishment.

Sunway-REIT reported its results for the second financial quarter ended June 30 (2Q23) yesterday, which saw net profit drop marginally lower year-on-year (y-o-y) by 3.1% to RM72.2mil, despite revenue having grown by 15.2% y-o-y to RM166.5mil.

Basic earnings per share stood at 1.96 sen versus 2.03 sen previously.

The company attributed the reduction in net profit to higher finance costs of RM11.2mil, resulting from the full impact of the cumulative 100-basis-point overnight policy rate (OPR) hikes by Bank Negara in 2022, coupled with another 25-basis-point hike in May 2023.

The OPR effect, however, was partially offset by net property income (NPI) improving RM9.3mil y-o-y for the quarter in review, said Sunway-REIT.

The trend was similar on the year-to-date basis, as net earnings for the six months ended June 30 slid 6.7% y-o-y to RM168.6mil compared to the first half of 2022, while turnover actually increased by 17% to RM349.3mil.

This comes as the real estate portfolio manager said higher finance costs amounting to RM22.2mil due to the effects of the OPR increases were the primary factor for the lowered net profit figures.

Meanwhile, compared with the preceding quarter ended March 31, net profit also fell 25.2% from RM96.5mil, in tandem with an 8.9% quarter-on-quarter reduction in revenue from RM182.8mil.

Sunway-REIT said this was mainly due to NPI decreasing by RM22.1mil in the current quarter, which was attributable to the better performance of its retail segment in the first three months of 2023, from year-end and new year festivity celebrations.

Additionally, the portfolio manager said higher property operating expenses during the June quarter as well as increased finance costs following another 25-basis-point OPR hike in May also shaved off earnings.

Nevertheless, Sunway-REIT has proposed a dividend per share of 4.62 sen for 2Q23.

Understandably concerned with interest rates, it said the outlook for rates moving forward remains uncertain due to volatilities in the global economic prospects.

“Although there was no OPR hike announced in the monetary policy meeting in July, in view of the quasi tightening, the Kuala Lumpur Interbank Offered Rate has increased, resulting in a higher cost of funds for businesses.

“We strive to improve the NPI, moving forward, to offset the impact of higher interest costs and proactively optimising our capital management strategy to minimise the impact of interest rate fluctuations,” it said.

In a separate statement, Sunway-REIT said it had entered into a conditional sale and purchase agreement with Kwasa Properties Sdn Bhd, a wholly-owned subsidiary of the Employees Provident Fund, to acquire a portfolio of six freehold hypermarkets in Klang Valley and Johor for RM520mil.

“Sunway-REIT’s property value will increase to RM9.69bil upon completion of the proposed acquisition, from RM9.10bil as at Dec 31, 2022.

“The properties are income-generating and are envisaged to contribute positively to the future earnings and distribution per unit of Sunway-REIT as well as being yield accretive to the asset portfolio of Sunway-REIT.”

The company added that the properties are expected to generate an NPI yield of approximately 8% based on the purchase consideration, in comparison to Sunway-REIT’s portfolio NPI yield of 5.4% for the financial year ended Dec 31, 2022.