Hong Leong Research Webinar 2021

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Hong Leong Research Webinar 2021 HLIB INSTITUTIONAL CLIENT WEBINAR BRACING THE COVID-19 PANDEMIC 22 March 2021 1 Disclaimer This presentation is for information purposes only and does not constitute an offer, solicitation or advertisement with respect to the purchase or sale of any security of Sunway Real Estate Investment Trust (“Sunway REIT”) and no part of it shall form the basis of, or be relied on in connection with, any contract, commitment or investment decision whatsoever. The information contained in this presentation is strictly private and confidential and is being provided to you solely for your information. This presentation may not be distributed or disclosed to any other person and may not be reproduced in any form, whole or in part. This presentation is not intended for distribution, publication or use in the United States. Neither this document nor any part or copy of it may be taken or transmitted into the United States or distributed, directly or indirectly, in the United States. Sunway REIT has not registered and does not intend to register any securities under the U.S. Securities Act of 1933 (the “Securities Act”). Accordingly, any offer of securities of Sunway REIT is being made only outside the United States pursuant to Regulation S under the Securities Act. You represent and agree that you are located outside the United States and you are permitted under the laws of your jurisdiction to participate in any offering of securities of Sunway REIT. This presentation may contain forward looking statements which are not subject to change due to a number of risks, uncertainties and assumptions. Representative examples of these factors include (without limitation) general industry and economic conditions; interest rate trends; cost of capital and capital availability including availability of financing in the amounts and on the terms necessary to support future business; availability of real estate properties; competition from other companies; changes in operating expenses including employee wages, benefits and training and property expenses; and regulatory and public policy changes. You are cautioned not to place undue reliance on these forward looking statements which are based on Management’s current view of future events. These forward looking statements speak only as at the date of which they are made and none of Sunway REIT, its trustee, any of its or their respective agents, employees or advisors intends or has any duty or obligation to supplement, amend, update or revise any forward looking statement contained herein to reflect any change in circumstances, conditions, events or expectations upon which any such forward looking statement is based. Past performance is not necessarily indicative of its future performance. This presentation does not constitute an offering circular or a prospectus in while or in part. The information contained in this presentation is provided as at the date of this presentation and is subject to change without notice. No representation or warranty, express or implied, is made as to, and no reliance should be placed on, the accuracy, completeness or correctness of any information, including any projections, estimates, targets and opinions, contained herein. Accordingly, none of Sunway REIT, its trustee, officers or employees accept any liability, in negligence or otherwise, whatsoever arising directly or indirectly from the use of this presentation. Empowering Businesses • Curating Experiences • Enriching Lives 2 Table of Contents 1. A Flu-conomic Crisis That Shook The World 2. How Are The Sectors Faring? • Retail – Challenging; Expect encouraging recovery ahead • Hotel – Tough times ahead as borders remain closed • Office – Heading towards a new paradigm shift • Industrial – Supported by strong e-commerce growth 3. From The Perspective Of Sunway REIT • Retail –Tenants’ safety and business continuity our utmost priority • Hotel – Staying lean and mean; Lulled period for enhancement • Office – Embracing new shifts • Industrial, Services & Others – Looking for Segment Growth 4. Opportune Time To Reap The Fruits Of Labour • Where are we focused on • How we effectively plan our capital strategy • A Vision to Transcend by 2025 • Profit with a purpose Empowering Businesses • Curating Experiences • Enriching Lives A Flu-conomic Crisis That Shook The World Empowering Businesses • Curating Experiences • Enriching Lives 4 Impact Of COVID-19 Continues To Linger COVID-19 Outbreak and Resurgence • For the year 2020, Malaysia’s GDP saw a 5.6% contraction where this is the second Chart 1 Y-o-Y Real GDP Growth (%) lowest contraction recorded post-Asian Financial Crisis where GDP suffered a 7.4% contraction in 1998. 3.6 • Real GDP recorded a drop of 3.4% in 4Q2020, largely attributable to the 0.7 imposition of CMCO on selected states since mid-October. The restrictions on mobility constricted the economic activity. -2.6 Economic Overview -3.4 • All economic sectors continued to see negative growth in 2H2020, except for manufacturing sector, saw a 3.3% and 3.0% growth in 3Q and 4Q2020 respectively. 2020: • The Retail and Hotel segments are most hit resulting from cautious consumer -5.6% sentiment and changing spending pattern as a result of the MCO restriction; inter- district and inter-state travelling restrictions. -17.1 • Businesses are looking at a paradigm shift to their traditional way of doing things by 4Q2019 1Q2020 2Q2020 3Q2020 4Q2020 Sectorial Analysis accelerating their digitalisation effort to prevent themselves from being disrupted. Daily COVID cases in Malaysia Chart 2 (January 2020 – February 2021) Growth by Economic Sector (%) 10 5 Mar: 0 CMCO 13 Jan: Sunway REIT stance MCO -10 -20 14 Oct: CMCO -30 18 Mar: 13 May: 10 Jun: MCO CMCO RMCO -40 -50 Mfg. Agri. Serv. Mng. Const. Strategy Forward 1Q2020 2Q2020 3Q2020 4Q2020 Source: Bank Negara Bulletin, Department of Statistics Malaysia (DOSM), Center for Systems Science and Engineering (CSSE) at Johns Hopkins University Empowering Businesses • Curating Experiences • Enriching Lives 5 Challenging Operating Environment 1Q 2020 2Q 2020 3Q 2020 4Q 2020 National Statistics 1st round of MCO 2nd round of Pre-COVID-19 RMCO reopening / CMCO CMCO Daily COVID-19 cases 0 - 2 digits 2 - 3 digits 1 - 3 digits 4 digits Economic Overview GDP (% Y-o-Y) +0.7% -17.1% -2.6% -3.4% GDP (% Q-o-Q) -2.0% -16.5% +18.2% -0.3% Sectorial Sectorial Analysis Economic Impact of COVID-19 and Movement Restrictions: The economic situation and retail consumption trends in 2020 have been fluctuating in line with the pandemic and movement restrictions: 2020 ➢ 2Q 2020: Adverse impact resulted from initial surge of COVID-19 and 1st round of MCO / CMCO ➢ 3Q 2020: Recovery from successful management of COVID-19 and RMCO re-opening ➢ 4Q 2020: Adverse impact resulted from resurgence of COVID-19 and 2nd round of CMCO across multiple states Sunway REIT stance ➢ Jan 2021: 2nd round of MCO effected in key states and Declaration of State of Emergency 2021 ➢ Feb 2021: Malaysia’s National COVID-19 Immunisation Programme kickstarted ➢ Mar 2021: Declining daily cases; MCO replaced by CMCO with most businesses allowed to open up Strategy Forward Source: DOSM, Bank Negara Malaysia (BNM), International Monetary Fund (IMF), Retail Group Malaysia (RGM) Empowering Businesses • Curating Experiences • Enriching Lives 6 Light At The End Of Tunnel Pandemic vs Financial Crisis: ▪ Unlike the Asian Financial Crisis 1997 and Global Financial Crisis 2008, the virus inflicted health crisis in 2020 is primarily caused by the global viral pandemic and movement restrictions instead of financial market drivers. ▪ When the pandemic is under control, the “fear” factor will subside domestic retail and travel spending is expected to recover over time to pre-pandemic level, while international trade and travel restrictions will also be gradually lifted, especially intra-Asian routes. Economic Overview Potential Catalysts in 2021: ✓ Move towards mass vaccination and potentially earlier herd immunity will be achieved. ✓ Inter-states border re-opening and potentially looking at travel bubble between nations; Tourism Boost. Sectorial Analysis ✓ Pent-up local demand upon lifting of restrictions where similar trends were observed in RMCO previously. ✓ Continuation of PRIHATIN and PENJANA economic stimulus package, including electricity tariff rebate, wage subsidy, targeted loan moratorium etc. ✓ Low interest rate environment likely to be maintained; conducive for businesses. Sunway REIT stance However… ➢ Not all property sectors or states will recover at the same rate or to the same level; the paradigm shifted to consumer-centric services. Winners are those who took the opportunity to improve during the pandemic. ➢ Prolonged period of movement restrictions and technological disruptions may have changed consumer behavior and preferences in the post-COVID-19 new normal, e.g. physical retail vs e-commerce and Strategy Forward food delivery apps. Source: Department of Statistics Malaysia (DOSM), Bank Negara Malaysia (BNM), PricewaterhouseCoopers (PwC), The Malaysian Reserve Empowering Businesses • Curating Experiences • Enriching Lives 7 Retail Hotel How Are The Sectors Faring? Office Industrial Empowering Businesses • Curating Experiences • Enriching Lives 8 Leading Malls Registered Stable Occupancy Despite the lower retail footfall in 2020, occupancy rates for well-managed leading retail malls in Greater KL area are demonstrating high level of resiliency. Economic Economic Overview – Sunway Pyramid Mall, Selangor Mid Valley, Kuala Lumpur Retail
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