Date: October 2, 2024
Broker: Maybank Investment Bank Berhad

Overview
Al-Salam REIT (SALAM MK) is a Shariah-compliant REIT in Malaysia with a diversified portfolio of assets including retail, industrial, and hospitality properties. Despite facing challenges in occupancy rates and earnings, Al-Salam REIT has potential for growth through strategic asset management.

Stock Performance and Target Price

• Current Price (CP): MYR0.39
• Target Price (TP): MYR0.41
• Upside: 8%
• Market Capitalization: USD54 million
  Al-Salam REIT is rated as a HOLD with a modest 8% potential upside. The REIT faces challenges in certain segments but has opportunities for recovery through improving earnings and strategic asset repositioning.

Earnings Forecast and Dividend Yields

• 2024 Core Earnings Growth: 32.6%
• 2025 Core Earnings Growth: 13.1%
• 2024 Dividend Yield: 3.1%
• 2025 Dividend Yield: 7.6%

Al-Salam REIT’s earnings are expected to grow significantly in 2024, driven by improvements in occupancy rates and operational efficiency. The projected dividend yields for 2025 signal a potential recovery in the REIT’s payout to investors.

Occupancy Rates of Key Properties
Al-Salam REIT has faced challenges with occupancy in some of its properties, though there are signs of improvement:

• KOMTAR JBCC Mall: 64.0% occupancy in 2Q24, showing recovery from previous years’ lower occupancy rates.

The retail segment, particularly KOMTAR JBCC Mall, continues to face stiff competition and occupancy risks, but there is potential for recovery with better tenant strategies and increased foot traffic.

Retail Segment Outlook
Al-Salam REIT’s retail properties, such as KOMTAR JBCC Mall, have struggled with lower occupancy rates, reflecting the competitive retail environment. However, the REIT is taking steps to reposition these assets and improve tenant mix to attract higher footfall and occupancy rates in the future.

Debt Profile and Financing Costs

• Total Debt: MYR641 million
• Floating Rate Debt: 100% of total debt
• Gross Gearing: 49%

Al-Salam REIT has full exposure to floating rate debt, which increases its sensitivity to interest rate fluctuations. However, its relatively high gearing ratio provides room for asset management strategies to improve financial performance and reduce risk.

Investment Thesis
Al-Salam REIT faces challenges in its retail segment but shows potential for growth through improved asset management and recovery in occupancy rates. The REIT’s significant projected earnings growth in 2024, coupled with strategic repositioning of its retail assets, presents an opportunity for investors to benefit from a recovery in dividends and value. While exposure to floating rate debt and lower occupancy remain risks, the REIT’s management is focused on improving performance and driving long-term growth.

This analysis provides a detailed view of Al-Salam REIT’s position and outlook as of October 2, 2024.