Persistent supply-demand imbalance to drag Sentral Reit's earnings outlook

NST Mon, Jan 23, 2023 10:31am - 2 months View Original

Sentral Reit is 28 per cent-owned by Malaysian Resources Corp Bhd and 12 per cent by the Employees Provident Fund.

KUALA LUMPUR: The persisting supply-demand imbalance of office space is expected to continue weighing on the earnings outlook of Sentral Reit, according to Kenanga Research.

Sentral Reit is 28 per cent-owned by Malaysian Resources Corp Bhd and 12 per cent by the Employees Provident Fund.

Kenanga Research also said Sentral Reit's financial year 2022 core net profit of RM73.6 million was within expectations, coming in at 0.5 per cent and 1.8 per cent above the firm and consensus' full-year estimates.

Kenanga Research said Sentral Reit's overall portfolio occupancy rate had been sliding from 90 per cent in end-December 2021 to 86 per cent in end-March 2022, to 78 per cent end-June and 73 per cent end-September 2022 before rising marginally to 77 per cent end-December last year.

"The challenging economic and sector backdrop also suggests it may take time for Sentral Reit to raise the occupancy rate back to the 2021 level.

"Of the 511,000 square feet or 28 per cent of total committed net lettable area (NLA) up for renewal in 2022, a low renewal rate of 41 per cent was achieved with non-renewal of leases coming mainly from Quill Building 2 and Wisma Technip.

"For 2023, there will be 162,000 sq ft (or 10 per cent of NLA) of space due for renewal," it said.

The firm said Sentral Reit's full-year gross revenue of RM147.4 million led core net profit to decline by 13 per cent year-on-year (YoY) to RM73.6 million.

This is after adjusted for a reduction in fair value of investment properties of RM23.9 million in financial year 2022 (FY22) versus RM15.7 million in FY21.

It was also adjusted after a gain on divestment of investment property of RM3.8 million that was previously recognised in FY21.

Kenanga Research said this was 0.5 per cent and 1.8 per cent above its forecasts as well as consensus'.

"Post the results, our net profit projections stand at RM71.3 million (unchanged) for FY23 and RM70.8 million (new) for FY24. Our distribution per unit estimates are set at 6.3 sen each for FY23 and FY24, which imply yields of 7.0 per cent," it said.

It maintained an "Underperform" call on Sentral Reit with a target price of 79 sen amid the tough sector fundamentals.

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