Al-Salam REIT (SALAM MK) has reported a disappointing 2Q24, with realised earnings of RM1 million for the quarter, bringing the half-year total to RM3 million. This performance fell short of the full-year estimate of RM8 million. Despite a 1% year-on-year increase in net property income (NPI) to RM12.8 million, the results were negatively impacted by higher finance costs and a decline in NPI from the retail segment.

Maybank Stock Broking House have maintained a HOLD call on Al-Salam REIT, with an unchanged target price of RM0.41 based on the Dividend Discount Model (DDM). The second interim gross distribution per unit (DPU) declared for 1H24 is 0.47 sen, with a 2Q24 interim DPU of 0.17 sen. The primary concern has been the higher Islamic financing costs, which increased by 16.7% year-on-year due to a rise in the profit rate from 5.5% in FY23 to 6% in FY24. Additionally, the NPI margin weakened by 1.7 percentage points year-on-year to 65.7%, partly due to reduced contributions from the retail segment, which fell by 14.1% quarter-on-quarter.

Looking ahead, Al-Salam REIT has allocated approximately RM75 million for the next two years to rejuvenate KOMTAR JBCC. The upgrade includes reconfiguring the tenant mix and layout, with the first phase expected to be completed by the fourth quarter of 2024. The project is also expected to benefit from the upcoming Pedestrian Overhead Bridge (POB) linking KOMTAR JBCC to the Rapid Transit System (RTS) Link Bukit Chagar Station, scheduled for completion in 2027. This connection is anticipated to drive increased foot traffic to the mall and potentially enhance rental rates.

Source: Maybank
Title: Shortfall