Sunway REIT’s 3QFY15 (Jun) came in within expectations. Maintain NEUTRAL and a DDM-based TP of MYR1.55 (6.5% downside). It remainscautious over the short term on the prospects of its retail and hospitality segments post GST, although Sunway Putra Mall is on track to reopen by end-May. Unsurprisingly, it expects the outlook on the office segment to remain soft over the short to medium term.

• Within expectations. Sunway REIT’s (SunREIT) 3Q15 core profit of MYR58.9m (-6.5% QoQ, +0.8% YoY) brought 9MFY15 core profit to MYR185.4m (+5.4%YoY). This came in line , at 75%/73% of our and consensus full-year forecasts. A distribution per unit (DPU) of 2.13 sen was declared for the quarter, which adds up to 6.68 sen or 75.4% of our full-year DPU forecast of 8.86 sen. 3Q earnings were underpinned byhealthy rental reversions from the retail segment. However, this was offset by the lower contribution from the hospitality and office segments,which were hit by softer consumer sentiment pre-goods and services tax (GST) implementation and lower occupancy respectively. SunREIT also recognised maiden contributions from Sunway Hotel Georgetown and Wisma Sunway this quarter as the acquisitions were completed in Jan and March respectively.
• Briefing highlights. Management shared that the refurbishment of Sunway Putra Mall (SPM) was completed back in Feb 2015 and the mall is slated to fully re-open by end-May, with an expected occupancy rate of 75%. Although this is positive for the REIT, we expect SPM to only contribute meaningfully from FY16 onwards, given its short operational period. Despite the challenging retail market post GST, management expects both FY15 revenue and DPU to remain stable. Additionally, the REIT maintains its cautious view on the office segment as it remainsunder pressure due to the persistently soft environment. That said, the prospects for its Sunway Putra Tower could turn more positive once SPM commences operations.
• Maintain NEUTRAL. We maintain our forecasts, NEUTRAL call and DDM-based TP of MYR1.55 on SunREIT While we believe all the positives have been priced in, its dividend yield is still decent, at above5%. The injection of yield-accretive assets and successful revamp of Sunway Putra Mall remains the key re-rating catalyst for the REIT.