KUALA LUMPUR (Jan 24): RHB IB has raised Sentral REIT’s earning forecast for 2024–2025 (FY2024F–2025F) by 11% after incorporating contributions from the Menara CelcomDigi acquisition.

In a note on Wednesday, RHB IB stated that Sentral REIT’s net profit for the fourth quarter of 2023 (4Q2023) came in at RM19.2 million, a 15.7% year-on-year (y-o-y) increase, bringing its FY2023 earnings to RM 72.7 million.

This is in line with expectations at 103% of its estimates and 100% of the Street’s estimates.

During the quarter, revenue also improved 22% y-o-y, mainly due to higher income from Platinum Sentral, Menara Shell and the newly acquired Menara CelcomDigi, it said.

“This helped offset the 21.8% higher utility expenses y-o-y, hence allowing the REIT to maintain a stable 76.8% net property income. On a full-year basis, earnings were 1.2% lower y-o-y due to lower occupancy rates in the first half of 2023 (1H23),” it added.

Meanwhile, it stated that occupancy rate for the quarter has improved to 89%, a notable improvement from the low of 77% from 2H2022 to 1H2023. It attributed this improvement to the acquisition of Menara CelcomDigi and securing of a new tenant for Sentral Building 4.

RHB IB added that only 13% of the total net lettable area (NLA) is up for renewal for FY2024, and these comprise the REIT’s stronger assets, including Platinum Sentral and Menara Shell.

However, it expects rental reversions to remain flattish amid the challenging office market, it said.

Besides, the research house stated that Sentral REIT’s gearing level of 45% is close to the 50% gearing limit imposed by the Securities Commission.

It opined that any disposal opportunity for Wisma Sentral Inai, which is approaching two years since being left vacant, will be a strong re-rating catalyst for the REIT.

The property holds a valuation of RM154 million, equivalent to 6% of Sentral REIT's total asset value. Utilising this amount to repay borrowing may decrease the REIT's gearing ratio to 41%, it added.

Nevertheless, RHB IB is optimistic on Sentral REIT’s prospects following higher occupancy rates, upgrading its call from “neutral” to "buy” with a higher target price of 91 sen (from 87 sen).

The key downside risk to its outlook includes oversupply of the office properties in the market, which will affect the REIT’s occupancy and rental rates, it added.

At the time of writing, Sentral REIT traded up half a sen or 0.63% to 80 sen, translating into a market capitalisation of RM 956.4 million.