Date: October 2, 2024
Broker: Maybank Investment Bank Berhad
Overview
Sentral REIT (SENTRAL MK) is an office-focused REIT in Malaysia, known for its high-quality office properties located in key business hubs. The REIT benefits from stable long-term leases, high occupancy rates, and strong dividend yields, making it a defensive choice for investors.
Stock Performance and Target Price
- Current Price (CP): MYR0.77
- Target Price (TP): MYR0.89
- Upside: 23%
- Market Capitalization: USD221 million
Sentral REIT is rated as a BUY, with a significant 23% potential upside. The REIT’s stable income from long-term tenants and prime office assets positions it well for future growth.
Earnings Forecast and Dividend Yields
- 2024 Core Earnings Growth: 13.6%
- 2025 Core Earnings Growth: 12.7%
- 2024 Dividend Yield: 7.4%
- 2025 Dividend Yield: 7.9%
Sentral REIT is expected to maintain consistent earnings growth over 2024 and 2025. The REIT also offers attractive dividend yields, making it a strong choice for income-seeking investors.
Occupancy Rates of Key Properties
Sentral REIT enjoys high occupancy rates across its office assets, supported by long-term leases with blue-chip tenants:
- Sentral Building 1 – DHL: 100%
- Sentral Building 2 – DHL: 100%
- Platinum Sentral: 97%
- Menara Shell: 82%
- Menara CelcomDigi: 100%
These high occupancy rates underscore the stability of Sentral REIT’s office portfolio, which is bolstered by its strategic location in Malaysia’s business districts.
Office Segment Outlook
The office segment in Malaysia has seen relatively stable occupancy rates, with average occupancy in Kuala Lumpur around 70-72%. Sentral REIT is well-positioned to benefit from steady demand for high-quality office space, particularly as multinational corporations continue to establish regional hubs in the country. Sentral REIT’s focus on long-term leases with reputable tenants helps mitigate any volatility in the broader office market.
Debt Profile and Financing Costs
- Total Debt: MYR1.166 billion
- Floating Rate Debt: 76% of total debt
- Gross Gearing: 45%
Sentral REIT’s debt profile shows a significant proportion of floating rate debt, which exposes the REIT to interest rate fluctuations. However, the strong and stable revenue stream from its high-occupancy office buildings helps mitigate this risk.
Investment Thesis
Sentral REIT provides a compelling investment opportunity with its focus on high-occupancy office buildings, stable long-term leases, and attractive dividend yields. While the exposure to floating rate debt presents some risks, the REIT’s high-quality tenants and strategic assets in key business locations ensure stable income and growth prospects. Sentral REIT’s strong earnings forecast and high dividend yields make it a favorable choice for both income-focused and growth-oriented investors.
This analysis provides a detailed view of Sentral REIT’s performance and outlook as of October 2, 2024.
