KUALA LUMPUR: Sentral Real Estate Investment Trust (Sentral REIT) has renewed 42 per cent of leases which expired across its properties in the first nine months of 2024 (9M24), securing a low single-digit rental reversion, according to CIMB Securities.
The REIT still has 5.0 per cent of net lettable area (NLA) up for renewal in the fourth quarter of FY2024 (4Q24), and 18 per cent in 2025.
CIMB Securities said the REIT remains optimistic on the renewal of leases due in 4Q24, largely in Platinum Sentral.
Separately, RHB Research said that for now, it does not expect any drop in occupancy levels as the bulk of the leases comprises of the REIT's long-term tenants.
"We also expect occupancy rates to improve as the space vacated in June 2024 (5.0 per cent of NLA) comes from Menara Shell, which should be attractive for prospective tenants," it said in a note.
Menara Shell saw a decline in occupancy after a tenant's exit in late May, leaving 17 per cent of the building's net lettable area vacant.
Both CIMB Securities and RHB Research anticipate that this vacancy will be filled shortly, as Sentral REIT remains optimistic about securing new tenants in the near term.
Sentral REIT reported a 13.9 per cent year-on-year (YoY) increase in core net profit to RM60.9 million for the first nine months of 2024, mainly driven by initial contributions from its newly acquired asset, Menara CelcomDigi.
According to CIMB Securities, this growth was also bolstered by the full occupancy achieved at Sentral Building 4 by the end of 2023. The profit figures met CIMB Securities' and market expectations, covering 75 per cent of their full-year forecasts.
"We expect flattish quarter-on-quarter (QoQ) net profit growth in 4Q24, underpinned by steady occupancy rates," the research firm said.
RHB Research also said that Sentral REIT's performance aligned with their projections, noting that occupancy levels have remained resilient despite challenges.
As of September 2024, Sentral REIT's overall occupancy rate stood at 84 per cent, compared to 89 per cent in December 2023.
Sentral REIT's revenue demonstrated robust growth, recording a 27 per cent YoY increase, driven by contributions from Menara CelcomDigi, higher occupancy at Sentral Building 4, and strong performance from Platinum Sentral.
RHB Research noted an 18 per cent year-to-date (YTD) revenue growth, partially offset by a 22.8 per cent YoY rise in property expenses due to increased utility and maintenance costs tied to Menara CelcomDigi.
Despite rising costs, Sentral REIT's net property income (NPI) rose 28.3 per cent YoY to RM113.6 million.
However, both CIMB Securities and RHB Research highlighted the impact of rising interest rates on Sentral REIT's net margin, which declined to 42 per cent in the first nine months of 2024, compared to 46 per cent during the same period the previous year. RHB Research attributed this to the increase in the Kuala Lumpur Interbank Offered Rate (KLIBOR), which affected 76 per cent of Sentral REIT's floating-rate borrowings.
RHB Research maintained a "Buy" rating for Sentral REIT with a target price of 91 sen, estimating a potential 15 per cent upside and a dividend yield of around 9.0 per cent for FY25.
Meanwhile, CIMB Securities upheld a "Hold" rating, slightly increasing the target price to 86 sen as they rolled their valuation forward to the end of 2025, supported by a projected distribution yield of 8.2 per cent to 8.5 per cent for FY25 to FY26.