Broker: UOB Kay Hian
Date of Report: Wednesday, 13 August 2025

Sunway REIT 2Q25 Analysis: Resilient Retail Outlook Amid Inflationary Challenges

Company Overview: Sunway Real Estate Investment Trust

Sunway Real Estate Investment Trust (Sunway REIT) is a leading Malaysian REIT with diversified investments across retail, office, and hotel properties. The trust continues to expand its footprint with strategic asset acquisitions, aiming for attractive, stable returns for its investors.

• Share Price: RM2.15
• Target Price: RM2.05 (Upside: -4.6%)
• Market Cap: RM7.36 billion (US\$1.74 billion)
• Shares Outstanding: 3,424.8 million
• Major Shareholders: Sunway Bhd (40.9%), Employees Provident Fund (15.7%), Kumpulan Wang Persaraan (6.0%)
• FY25 NAV/Share: RM2.35
• FY25 Net Debt/Share: RM1.87

2Q25 Financial Highlights

Sunway REIT delivered in-line results for 2Q25, with management maintaining a cautious outlook for 2H25 due to inflationary pressures and a 5% year-on-year decline in retail sales per square foot. The retail segment is expected to remain resilient, bolstered by new asset acquisitions and a full-quarter contribution from Sunway Carnival Mall. Hotel occupancy is anticipated to improve in 3Q25, driven by the summer holidays.

Gearing ratio was 41.2% as of end-June 2025, expected to normalize to around 38% following the disposal of Sunway University & College campus for RM613 million in 3Q25.

Segment Analysis: Retail, Hotel, Office & Others

Retail Segment: Resilience Amid Tax and Inflation Headwinds

• 2Q25 retail revenue surged 29% YoY on full-quarter contributions from new assets and the Sunway Pyramid Mall’s Oasis Wing opening.
• NPI margin for retail rose to 71.3% (2Q24: 69.7%).
• Rental reversion achieved low-teens in 2Q25; management guides for mid-single-digit growth in 2H25 due to expanded SST and inflation.
• High-single-digit rental reversion expected for full-year 2025.
• Sunway Carnival Mall occupancy rate nearing 100%, set to support upcoming quarters.

Hotel Segment: Seasonal Recovery Expected After Weak 2Q25

• 2Q25 hotel revenue declined 13% YoY, with occupancy at 60% (-2ppt YoY).
• Lower average room rates (-1% YoY) in Klang Valley due to competition, fewer events, and airspace closures in the Middle East.
• Occupancy projected to improve from July 2025 onwards, driven by summer holidays.

Office Segment: Stable Outlook with Asset Enhancement

• 2Q25 office revenue down 2% YoY; NPI reduced by 6% YoY due to occupancy falling to 82% (-2ppt YoY).
• Sunway Putra Tower occupancy dropped to 67% (-6ppt YoY); expected to recover to nearly 80% by 2H26.
• Despite increasing office supply, asset enhancement initiatives (air conditioning, lifts, transformers) are expected to cushion the impact.

Others Segment

• Revenue from other segments grew 20.8% YoY in 2Q25, contributing positively to overall performance.

Valuation and Recommendation

• Maintain HOLD rating, with an unchanged target price of RM2.05.
• Target price based on discounted dividend model (DDM), with a required return rate of 7.5% and an implied 2026 dividend yield of 5.5%.
• No changes to earnings forecasts for the period.

Environmental, Social, and Governance (ESG) Initiatives

Environmental

• Target to achieve Net Zero Carbon Emissions by 2050.
• Internal carbon pricing framework established at RM15 per tonne of CO2 emitted.

Social

• Sustainability Policy and Donations, Sponsorships, and Corporate Responsibility Policy established.
• Occupational, Health, Safety, and Environment Committee formed at business segment level.

Governance

• 43% of Board of Directors are women.
• Anti-Bribery and Corruption Policy adopted, supported by Whistleblowing Policy and Procedures.

Key Operating Metrics and Financial Performance

Segmental Revenue and Occupancy Trends

• Revenue Breakdown (2Q25): Retail 75.7%, Hotel 7.9%, Office 9.6%, Others 6.8%
• NPI Contribution (2Q25, RMm): Retail 114.1, Hotel 15.6, Office 12.2, Others 13.0
• Occupancy Rates (2Q25): Retail 99%, Hotel 60%, Office 82%

Profit & Loss, Balance Sheet, and Cash Flow Summary

Summary: Investment Perspective

Sunway REIT continues to demonstrate resilience in its retail segment despite macroeconomic headwinds. The cautious stance on 2H25 rental reversion reflects prudent management amid inflation and regulatory changes. Asset enhancements in the office segment and expected seasonal recovery in hotels further support stable performance. ESG initiatives remain a core focus, aligning with long-term sustainability targets. With a HOLD recommendation and a target price of RM2.05, Sunway REIT offers investors a balanced exposure to Malaysia’s commercial property sector with a steady dividend yield outlook.