Sunway Real Estate Investment Trust

Solid Performance Fully Reflected in Share Price

Review

• Sunway REIT’s 1H25 realised net profit rose 21.9% YoY to RM195.1mn, in line with expectations and accounting for 50% of our full-year forecast and 49% of consensus estimates.
• Sunway REIT declared a first income distribution of 5.68sen/unit (+21.9% YoY). This works out to a 5.3% annualised dividend yield based on the last closing price.
• Net property income rose 20.1% YoY to RM312.1mn in 1H25, backed by a 21.5% increase in revenue to RM430.3mn. The improvement was driven by contributions from assets acquired in 2024 and the reopening of the Oasis precinct at Sunway Pyramid Mall, though partially offset by weaker performance in the hotel and office segments due to lower occupancy.
• The retail segment’s NPI surged 33.4% YoY to RM230.9mn, boosted by new rental contributions from six Sunway REIT Hypermarkets, Sunway 163 Mall, and Sunway Kluang Mall acquired in 2024. Performance was further boosted by stronger contributions from Sunway Pyramid Mall following the November 2024 reopening of its fully refurbished 260,000 sq. ft. Oasis precinct, as well as the completion of refurbishment works on Sunway Carnival Mall’s existing wing in May 2025.
• The hotel, office, and services segments delivered mixed results in 1H25. The hotel segment’s NPI declined 16.6% YoY to RM30.5mn, impacted by a drop in average occupancy from 62% to 60% due to softer leisure demand and fewer events. The office segment’s NPI fell 8.5% YoY to RM24.6mn, weighed down by lower occupancy and higher assessment expenses. The services segment recorded a modest 2% YoY NPI growth, supported by annual rental escalations.
• The industrial and other segments performed strongly, with NPI rising 59% YoY on the back of positive rental reversion at Sunway REIT Industrial – Shah Alam 1, improved occupancy at Sunway REIT Industrial – Petaling Jaya 1, and new rental contributions from Sunway REIT Industrial – Prai.
• Realised profit attributable to unitholders rose 21.9% YoY to RM195.1mn in 1H25, in line with the stronger NPI performance.
• On a QoQ basis, realised net profit attributable to unitholders eased 2.1% to RM96.5mn in 2Q25, as retail segment NPI fell 2.3%. This was largely due to the high base in 1Q25, which benefitted from festive season spending, including Chinese New Year and Hari Raya.

Impact

• We raise FY25-27 earnings by 1.4%-4.7% to account for the contributions from the new acquired AEON Mall Seri Manjung and higher rental income following the completion of Sunway Carnival Mall’s refurbishment.

Conference Call Highlights

• Management observed softer consumer sentiment, reflected in a 5% decline in tenant sales psf in 1H25. However, this is expected to be cushioned by supportive measures, notably Bank Negara’s 25bps OPR cut to 2.75% on 9 July 2025 and the Government’s recent cost-of-living relief initiatives. These include a toll hike freeze on 10 major highways, a RON95 price cap at RM1.99/litre for Malaysians, lower electricity tariffs benefiting around 85% of households, and a RM100 “SARA for All” cash payment per adult citizen. Collectively, these measures should ease household financial burdens and help sustain consumer spending.
• The hotel and office segments saw temporary softness due to seasonal factors and external disruptions, but early signs of recovery are emerging. The hospitality segment, in particular, is supported by strong forward bookings, paving the way for a stronger 2H25.
• The portfolio achieved a low-teens rental reversion in 1H25, up from 10% a year earlier and above the initial mid-single-digit FY25 guidance. While operational momentum remains strong, management is keeping its full-year rental reversion target at a conservative mid-single-digit level to account for macro uncertainties such as trade tensions, the SST expansion, and potential pressure on consumer sentiment. On the SST imposed on rental services, management noted no major pushback from tenants so far but does not rule out resistance emerging later, prompting a prudent stance on guidance.
• Despite a measured approach to guidance, management remains confident in delivering a solid FY25 performance, underpinned by sustained retail growth following the completion of Sunway Carnival Mall’s refurbishment, the acquisition of AEON Mall Seri Manjung in July 2025, and full-year contributions from assets acquired in 2024.

Valuation

• Following our earnings upgrade, we revise our TP to RM2.28/unit (from RM2.19/unit), premised on a CY26 target yield of 5.5% and incorporating a 3% ESG premium.
• We maintain our Sell recommendation despite the earnings upgrade, as we view the risk-reward profile as unfavourable. At current levels, Sunway REIT’s distribution yield spread over the 10-year MGS is only 190bps, which is more than 1 standard deviation below the 5-year average of 285bps and represents the tightest level post COVID-19. This compressed spread leaves little valuation buffer if interest rates rise or operating metrics weaken.

Financial Tables

Table 1: Earnings Summary (RMmn)

Table 2: 2Q25 Results Analysis (RM mn)

Recommendation Guidelines

Sector Recommendation Guideline

• OVERWEIGHT: The total return of the sector, as per our coverage universe, exceeds 12%.
• NEUTRAL: The total return of the sector, as per our coverage universe, is within the range of 7% to 12%.
• UNDERWEIGHT: The total return of the sector, as per our coverage universe, is lower than 7%.

Stock Recommendation Guideline

• BUY: Total return of the stock exceeds 12%.
• HOLD: Total return of the stock is within the range of 7% to 12%.
• SELL: Total return of the stock is lower than 7%.
• Not Rated: The company is not under coverage. The report is for information only.

Total Return of the stock includes expected share price appreciation, adjustment for ESG rating and gross dividend. Gross dividend is excluded from total return if dividend discount model valuation is used to avoid double counting.

Total Return of the sector is market capitalisation weighted average of total return of the stocks in the sector.

ESG Scoring & Guideline

• ★★★★★ (≥80%): Displayed market leading capabilities in integrating ESG factors in all aspects of operations, management and future directions. +5% premium to target price
• ★★★★ (60-79%): Above adequate integration of ESG factors into most aspects of operations, management and future directions. +3% premium to target price
• ★★★ (40-59%): Adequate integration of ESG factors into operations, management and future directions. No changes to target price
• ★★ (20-39%): Have some integration of ESG factors in operations and management but are insufficient. -3% discount to target price
• ★ (<20%): Minimal or no integration of ESG factors in operations and management. -5% discount to target price