Sentral REIT is office focused REIT with 9 properties across Malaysia. They were listed in the Bursa Malaysia exchange in January 2007 with investment primarily in the office and retail sector. One of the key development in FY21 is the disposal of Quill Building 5 which has been vacant over the past few years.
In this post, we will look at Sentral REIT FY21 performance to see how it has performed.
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1. Stable occupancy rate in FY21 with the disposal of Quill Building 5
|Quill Building 1 – DHL 1||100%||100%||100%|
|Quill Building 4 – DHL 2||100%||100%||100%|
|Quill Building 2 – HSBC||100%||100%||100%|
|Quill Building 3 – BMW||91%||91%||80%|
|Part of Plaza Mont’ Kiara||88%||90%||91%|
|Quill Building 5||0%||0%||0%|
|Lotuss Building Jelutong Penang (f.k.a Tesco)||100%||100%||100%|
One of the key concern of office focused REIT is the impact of COVID-19 with companies moving towards hybrid work arrangement. Occupancy rate of Sentral REIT has remained stable at 90% in FY21. A few of its properties has reported a declined in occupancy such as Menara Shell which reported a decline from 99% in FY20 to 92% in FY21. Similarly, Platinum Sentral and Quill Building 3 has reported an overall decline.
The positive aspect for Sentral REIT in FY21 is the disposal of Quill Building 5 in April 2021 to Derive Services Sdn Bhd. This disposal is favorable to Sentral REIT as it has remain vacant over the last 3 years and the proceeds from disposal can be better utilized elsewhere.
As at 31 December 2021, Sentral REIT owns 9 properties with a weighted average lease expiry of 3.78 years.
2. Revenue and net property income declined in FY21
|MYR in 000s||FY19||FY20||FY21|
|Net Property Income||121,748||126,120||122,649|
While the occupancy rate appears to be stable, the operational performance has in fact declined with 4 of its properties reporting a decline in occupancy. The stable appearance is driven by the disposal of Quill Building 5 which has been vacant over the past years. As a result, the financial performance has likewise declined. Revenue dropped from MYR 165.7 million in FY20 to MYR 160.6 million in FY21 while net property income declined from MYR 126.1 million in FY20 to MYR 122.6 million in FY21.
3. Increased in distribution per unit driven by the gain from disposal of Quill Building 5
|MYR in cents||FY19||FY20||FY21|
|Distribution per unit (DPU)||6.8||7.1||7.4|
In terms of distribution per unit, Sentral REIT has reported an overall increase in distribution per unit from 7.1 cents in FY20 to 7.4 cents in FY21. This increase in distribution per unit in FY21 despite a drop in financial performance is mainly attributable to the disposal of Quill Building 5.
Based on the the closing traded price as at 31 December 2021, this would give investors a yield of 8.19%. We will let you decide if this is worthwhile.
4. Healthy gearing level
As at 31 December 2021, Sental REIT has total borrowings of MYR 805.6 million which translates to a gearing level of 36.8%. This is an improvement from 37.9% in FY20. Regardless, the current gearing level is below the permissible limit giving them ample debt headroom for future acquisition and asset enhancement initiatives.
5. Prospect in 2022
With the on-going uncertainties due to the COVID-19 pandemic, the office and retail markets will no doubt be a challenge to navigate through. In 2021, 22% of Sentral REIT net lettable area were due for renewal of which 66% was successfully renewed. Looking forward to 2022, approximately 28% of committed leases are due for renewal. This will no doubt be an area of lookout for investors with the already declining portfolio occupancy.
Based on our overall analysis, Sentral REIT has reported an overall decline in performance in FY21 with the uncertainty of COVID-19. With another wave of lease due for renewal in 2022, this will potentially be adverse to Sentral REIT. From a price to book perspective, Sentral REIT is currently trading at price to book ratio of 0.74.
What are your thoughts on Sentral REIT FY21 Performance? If you are just getting started, feel free to read more of our REIT Guide and REIT Analysis. You can also read more about what REITs are if you are new to REITs.