• Maintain BUY and DDM-derived MYR0.91 TP (14% upside), 8% FY25F yield. Sentral REIT's FY24 results were in line with expectations, with YoY earnings growth driven by the acquisition of Menara CelcomDigi in Dec 2023, albeit with a lower DPU due to the higher share base. We think earnings will improve in FY25 as the REIT looks to fill the vacant space in Menara Shell (5% of portfolio NLA). Downside risks should be minimal as most tenancies consist of the REIT's long-term tenants.
• Results in line. 4Q24 core profit of MYR18.9m (-8% QoQ, -9% YoY) brought FY24 earnings to MYR79.8m (+8% YoY). This was broadly in line with expectations at 97% and 104% of our and Street estimates. YoY revenue grew by 19%, mostly driven by the acquisition of Menara CelcomDigi, and an increase in rental rates from its Cyberjaya assets, but occupancy rates fell to 84% from 89% at end-FY23 after Menara Shell saw a tenancy expiring in Jun 2024. YTD, NPI margin remained stable at 77%, while net margin was lower at 42% (FY23: 46%), attributed to the increase in KLIBOR rates (76% of the REIT's borrowings are at floating rates). Sentral REIT recorded a DPU of 6.36 sen for FY24 (FY23: 6.68 sen), a 5% decline YoY due to the higher share base and lower occupancy rates.
• Optimistic on lease renewals. We expect the REIT's blended occupancy rate to improve in FY25 as it gradually fills the space vacated in Menara Shell (5% of portfolio NLA), as we think the flagship asset should be attractive for prospective tenants. Furthermore, most of the REIT's 18% of NLA up for renewal in FY25 consists of its long-term tenants in Cyberjaya, as well as tenancies in Menara Shell and Platinum Sentral.
• Shift in strategy for funding. Sentral REIT announced that it entered into an interest rate swap arrangement to convert MYR317m of its floating-rate debt to fixed interest rates, effectively resulting in 51% of its borrowings being on fixed rates from 9 Jan 2025. We think the REIT could potentially miss out on interest cost savings in the short term, but management intends to raise the proportion of its fixed rate borrowings further to ensure a more stable funding structure in the long term.
• Earnings forecasts. Post results, we lower our FY25F earnings by 2% as we adjust our rental assumptions. Our TP has a 0% ESG premium/discount applied, as the 3.0 ESG score is in line with the country median. We continue to like the REIT for its attractive dividend yield of 8% and stable earnings outlook. Key downside risks to our outlook are lease non-renewals, and lower-than-expected rental reversions.

Source: RHB Research - 23 Jan 2025