SUNREIT: Earnings Surpass Expectations on Operational Strength; Analyst Maintains ‘Buy’ Rating

A recent investment bank report highlights a real estate investment trust’s (REIT) robust financial performance, with its core profit for the nine months ended 3Q25 significantly exceeding market expectations. The REIT reported a core profit of MYR335 million, marking a substantial 31% year-on-year increase, which accounted for 82-84% of both the investment bank’s and Street’s full-year estimates. Revenue for the same period climbed 22% to MYR666.7 million, while net property income (NPI) also rose 22% to MYR493 million.

Performance Review

The exceptional performance was primarily fueled by full-period contributions from strategic assets acquired in 2024, including prominent malls and an industrial property. Existing prime retail assets also demonstrated strong performance, contributing to an improved net margin of 53.4% (up from 46.7% in 9M24). This margin expansion was largely attributable to higher NPI coupled with a relatively stable expense base and a MYR21 million net gain from the disposal of the Sunway University & College campus. Furthermore, the REIT benefited from an eased average borrowing cost, which declined to 3.83% from 3.9% in YTD-3Q24.

Despite the overall positive trend, the office segment faced a minor setback. Occupancy rates remained stable across most segments but saw a slight decline in the office portfolio to 81% (from 84% in YTD-3Q24), primarily due to the non-renewal of a tenant at Wisma Sunway in June 2025. The REIT’s gearing stood at a healthy 41.4%.

Future Outlook

Looking ahead, the outlook remains positive for the retail and hotel segments, with expectations of growth in 4Q25 driven by year-end holidays and festive spending. Management anticipates achieving high single-digit rental reversions, supported by stable occupancy across key assets. The ongoing disposal of Sunway Hotel Seberang Jaya for MYR60 million, targeted for completion by 4Q27, is expected to enhance portfolio efficiency with minimal earnings disruption. The REIT also possesses ample capacity for future inorganic growth, with over MYR900 million in debt headroom based on 50% gearing.

Analyst’s View and Recommendation

In light of the healthy results, the investment bank has revised its core net profit forecasts upwards for FY25F-27F by 7%, 6%, and 6%, respectively. It has also raised its dividend discount model (DDM)-based target price to MYR2.45, up from MYR2.42, indicating a 15% upside and a 6% FY26F yield. The “BUY” recommendation is maintained. Key risks identified include slower-than-expected retail rental reversions and potential project execution delays at Sunway Pier and the Sunway Carnival Hotel.