KUALA LUMPUR: RHB Investment Bank Bhd said the potential disposal of Wisma Sentral Inai remains a key rating catalyst for Sentral Real Estate Investment Trust (Sentral REIT).
It said the building has been vacant for two years and was valued at RM154 million as of December 2023, down from RM170 million in December 2021.
"If it is sold and the proceeds are used to repay borrowings, we estimate that the savings from interest expenses could lift earnings by up to 8 per cent.
"We also estimate that a disposal would lower the REIT's gearing from 45 per cent to 41 per cent. As of now, we have not factored an asset disposal into our model," it said in a note.
RHB Research maintained its 'buy' call on the REIT due to attractive dividend yields, especially given a lower interest rate environment ahead, with a target of 91 sen.
It said that Sentral REIT's first half of 2024 (1H24) results are in line with expectations with a marginal Distribution Per Unit (DPU) growth year-on-year.
RHB Investment Bank Bhd said the second quarter's net profit rose to RM20.5 million, marking a 3.2 per cent increase quarter on quarter (QoQ), bringing 1H24 earnings to RM40.4 million.
"This is in line with expectations, at 48 per cent of our and Street full-year estimates.
"Revenue was flat QoQ, but earnings increased from 4 per cent lower property expense and finance costs as a result of a lower KLIBOR rate," it noted.
The firm said it resulted in a higher Net Property Income (NPI) margin of 76.9 per cent for the quarter.
Furthermore, RHB Research said Sentral REIT's overall occupancy rate fell to 84 per cent from 89 per cent in the previous quarter due to a lease expiration at Menara Shell.
"For now, we have assumed that the space would only be replaced in financial year 2025 (FY25), especially as new tenants would typically enjoy a rental-free period.
"At this juncture, downside risks to occupancy rates are limited. 18 per cent of net lettable area (NLA) will be up for renewal in FY25, and these mostly consist of the REIT's long-term tenants in Cyberjaya," it noted.