Sunway REIT (SREIT) registered a weaker than expected realized net profit of RM31.9m (-47.4% YoY, -4.7% QoQ) primarily due to lower contribution from the Retail and Hotel segments which were adversely affected by imposition of MCO 2.0 and closure of Sunway Resort Hotel for the quarter as the hotel has been closed for phased refurbishment works since July 2020. However, it was partially cushioned by higher contribution from the Office and Services segments. Office segment gross revenue rose almost 80% YoY to RM19.3m, underpinned by stable occupancy rates and full-quarter contribution from The Pinnacle Sunway. Given that outlook remains challenging with the nationwide MCO 3.0, we reduce FY21 realized net profit by 9%. Maintain Neutral call and TP of RM1.55.

• No respite for Retail business. Group retail segment registered gross revenue of RM53.7m in 3Q2021, a decrease of 45% YoY mainly attributed to rental support for affected tenants amidst a surge in COVID19 cases and various stages of MCO and CMCO in 3Q2021. Correspondingly, group net property income (NPI) for the retail segment saw a reduction of 64% YoY to RM23.9m.

• Hotel revenue declined 6% YoY. Group hotel segment recorded 3QFY21 gross revenue of RM14.4m, a decrease of 6% YoY due to restrictions on interstate, district and inbound travel, group and corporate events amidst various stages of MCO and CMCO nationwide, as well as closure of Sunway Resort Hotel for phased refurbishment since July 2020. However, the weakness was partially cushioned by guaranteed income received for Sunway Clio Property and Sunway Hotel Georgetown. NPI declined by 5% YoY to RM12.8m.

• New addition to Office portfolio. Group office segment registered gross revenue of RM19.3 million in 3Q2021 or an increase of 80% YoY primarily due to the new income contribution of RM9.1m from The Pinnacle Sunway acquired on 20 November 2020.

Source: PublicInvest Research - 20 May 2021