PETALING JAYA: Sentral Real Estate Investment Trust (Sentral-REIT) may see its portfolio occupancy rise from 86% currently to about 94% following the disposal of the long-vacant Wisma Sentral Inai, according to RHB Research.

The research outfit, in a report, said the RM135mil disposal, which is expected to be completed by the fourth quarter of financial year 2025 (4Q25), will free up capital for debt reduction or yield-accretive acquisitions.

“Despite the near-term earnings drag from Menara Shell’s vacancy earlier this year, we see financial year ending Dec 31, 2026 (FY26) as an inflection point, driven by the disposal of Wisma Sentral Inai and the upcoming fully tenanted acquisition of Arcoris Plaza in the retail segment,” it said.

The brokerage added that proceeds from the disposal will also provide flexibility to fund new assets, “such as the fully tenanted Arcoris Plaza (acquisition expected to be completed in 4Q25), or other new acquisitions”.

“This aligns with management’s intention to reduce concentration risk by gradually increasing exposure to non-office segments (currently less than 10% of portfolio),” it said.

Meanwhile, RHB Research expects Sentral-REIT’s 4Q25 performance to improve slightly, supported by steady occupancy and a full-quarter contribution from two new tenants at Menara Shell.

“For the remaining leases expiring this year, progress has been made with only 14% of total net lettable area up for renewal in 3Q25 compared with 21% in 2Q25.

“We are cautiously optimistic on renewal outcomes, given the REIT’s tenant mix, which includes long-term multi-national corporations,” it said, adding that management remained on track for low-to-mid single-digit rental reversions.

For the nine months ended Sept 30, 2025 (9M25), Sentral-REIT saw its topline down 1.3% to RM141.9mil due to weaker occupancy at Menara Shell following the exit of a key tenant last year.

This, combined with higher operating expenses from one-off maintenance repairs in 3Q25, led net property income to decline 2.3% year-on-year to RM108.3mil.

Following the results, RHB Research trimmed its FY25 and FY26 earnings forecasts by about 3% and 7%, respectively, and reduced its target price (TP) to 92 sen a unit from 97 sen previously to reflect updated assumptions for the 10-year Malaysian Government Securities (MGS) yield and slower occupancy growth at Menara Shell.

Meanwhile, CIMB Securities Research expects Sentral-REIT’s earnings to remain flattish quarter-on-quarter (q-o-q) in 4Q25 amid stable occupancy and normalised costs.

In 3Q25, the REIT’s portfolio occupancy improved slightly to 86% from 85% in the preceding quarter, driven by the entry of new tenants at Menara Shell, which lifted the building’s occupancy by five percentage points q-o-q, according to the research firm.

“In 3Q25, the REIT achieved a 99% lease-renewal rate with mid-single-digit rental reversions, in line with management’s targets. The remaining leases, representing 67% of renewals due for the year, are largely concentrated in December 2025, mainly from Sentral Buildings 1 and 2,” it said.

CIMB Securities Research maintained its earnings forecasts and “hold” call on the stock with an unchanged target price of 80 sen. “Sentral-REIT’s 12-month forward distribution yield spread over the 10-year MGS stands at 4.9%, broadly in line with its 10-year historical average,” it added.

Hong Leong Investment Bank (HLIB) Research noted that while portfolio occupancy across Sentral-REIT’s 10 properties improved slightly to 86% in 3Q25, gearing remained steady at 45%.

The research house said management continues to guide for low to mid-single-digit rental reversions, although it maintained a conservative assumption of flat to low-single-digit growth in its forecasts.

“The Klang Valley office market continues to show gradual signs of recovery,” it said.

“In 4Q25, the tenancy for DHL will be up for renewal.

“Management has already secured a lease renewal for Sentral Building 1 with a positive rental reversion, while discussions for Sentral Building 2 are ongoing. We believe an agreement is likely to be reached given the long-standing relationship and the successful renewal at Sentral Building 1.”

HLIB Research added that earnings could be supported from 4Q25 onwards by the planned injection of Arcoris Plaza.

That said, it maintained its “buy” call with an unchanged target price of 83 sen per unit, based on FY26 distribution per unit and an unchanged target yield of 8.2%.

“We continue to like Sentral-REIT, despite challenges in the oversupplied Klang Valley office market, as it has demonstrated resilience, registering a five-year earnings compound annual growth rate of 2.1%.”

Source: The Star (10 November 2025)