7.2% dividend yield still its strong point

■ 1QFY22 results were in line at 25-26% of our and consensus’ full-year
estimates; core net profit fell 1.6% yoy on lower interest income.
■ Key highlights in 1QFY22 were the negative impact of non-renewal of leases,
while occupancy rate of 86% remains well above industry average.
■ Maintain Add rating and TP of RM1, supported by dividend yields of 7.2-
7.3%, the highest among our REIT coverage.

1QFY22 results broadly in line; core net profit fell 1.6% yoy

Sentral REIT’s 1QFY22 core net profit was broadly in line at 25-26% of our and consensus’
full-year estimates. Overall operating conditions further improved in 1QFY22, on the back
of the full economic reopening, gradual repopulation of office space and the full easing of
Covid-19 restrictions. However, 1QFY22 revenue fell 5.5% yoy (-4.1% qoq) due to lower
rental income from Wisma Technip, Menara Shell, and QB3-BMW due to non-renewal of
leases. We understand this is not a major concern at this juncture, given the entry of a
replacement tenant at Menara Shell (effective 2QFY22) and potential increase in tenanted
space at Wisma Technip in view of the pick-up in oil and gas activities. The group will also
embark on a targeted strategy in seeking for new tenants at QB3-BMW to address the stillcompetitive office segment. Net property income (NPI) margin improved qoq, from 74% in
4QFY21 to 79% in 1QFY22. Nevertheless, 1QFY22 core net profit of RM20.4m was down
1.6% yoy on lower interest income. No dividends were declared in 1Q22, as expected,
while we maintain our FY22F DPU of 6.9 sen.

86% portfolio occupancy; 56% tenancy renewal rate in 1QFY22

The group achieved a 56% renewal rate for the tenancies expiring in FY22F (bulk of the
balance 44% that was not renewed came from Wisma Technip). On average, the group
achieved a flattish rental reversion in 1QFY22 and has guided for similar levels in FY22F.
Prospects of a positive turnaround in rental reversion remain challenging given the
oversupply of office space and the need to retain tenants. Due to the non-renewal of
leases, average portfolio occupancy rate at end-1QFY22 fell slightly to 86% (FY21: 90%)
but was still above the average office sector’s 74.3% at end-2021. We continue to
anticipate leasing activities in FY22F to be more targeted to accommodate potential
changes in tenanted space. For FY22F, some 28% of Sentral REIT’s total portfolio NLA
will be due for renewal, of which the bulk will be in 2QFY22 and 3QFY22.

7.2-7.3% dividend yields still support our Add rating

Our FY22-24F EPS and DPU are unchanged. We forecast FY22F/23F/24F DPU of 6.9
sen/6.9 sen/7 sen (92% payout ratio), translating to still-attractive dividend yields of 7.2-
7.3% – the highest among our REIT coverage and supportive of our Add rating. Our DDMbased TP of RM1.00 is intact (COE: 8.2%). Upside risk: stronger earnings, improving
occupancy rates and positive rental reversions. Downside risks: negative impact from
office space reconfiguration, falling occupancy rates and weaker rental reversions.