PETALING JAYA: Sentral Real Estate Investment Trust (REIT), formerly MRCB-Quill Reit, is likely to see flattish year-on-year earnings growth in 2021 and 2022, given minimal lease expiries and its track record of low single-digit positive reversions.
Kenanga Research said Sentral REIT would, in 2021 and 2022, see minimal lease expiries of 21% and 14% of net lettable assets respectively, while the issue of oversupply of office spaces in the Klang Valley remains.
“Positively, the group has renewed 85% of the 19% of leases up for renewal in 2020 while asset occupancy remains stable at 90%.
“Meanwhile the Covid-19 situation has caused the group to be more diligent in exercising financial discipline. But on the upside, this may help with attractive acquisition opportunities should the situation arise with a healthy balance sheet.”
CGS-CIMB also pointed out that Sentral REIT ended the year with a fairly healthy portfolio performance, despite the various lockdown measures and spike in Covid-19 cases during the fourth quarter of 2020.
“Last year’s average rental reversion was in positive territory, although we gathered that it was lower than our assumption of 1%.
“Going into 2021, the group targets to maintain similar reversion levels, which would be prudent, taking into account the possibility of a prolonged second movement control order (MCO 2.0), which may extend beyond two weeks.”
CGS-CIMB said the two-week MCO 2.0 raised the risks of potential space reconfiguration by office tenants, weaker car park income and extended rental assistance, as 4% of Sentral REIT’s total portfolio net lettable assets comprise retail as well as small and medium enterprises.
“We cut 2021 and 2022 revenue by 6% on lower occupancy rates of 90% (93% previously) and lower rental reversion of 1% (2% previously) to reflect the impact of MCO 2.0, offset by a higher net property income (NPI) margin of 77% and 78%, with a resultant 1% cut in earnings per share.”
CGS-CIMB said Sentral REIT’s 2020 core net profit of RM79.4mil (excluding the RM7.2mil negative revaluation on investment properties) was above expectations and at 108% of the research house’s full-year forecast.“While revenue was in line, the main deviation came from a higher-than-expected NPI margin of 77%.
“The fourth quarter 2020 revenue drop of 2.9% year-on-year was reflective of the impact of the conditional MCO period, dragged by weaker car park rental income and rental rebates/assistance for its retail tenants.”
The research house added that overall 2020 core net profit grew 20.2% year-on-year, driven by lower property operating cost and lower interest expense due to lower average cost of debt on account of the previous interest rate cut.
“Fourth quarter 2020 distribution per unit of 3.7 sen brings total 2020 dividend per share (DPS) to 7.1 sen.
“This was also above our full-year forecast of 6.2 sen. Total DPS translates into a payout ratio of 94%, compared with our assumption of 90% for 2020.”
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