PETALING JAYA: Sentral Real Estate Investment Trust
’s (Sentral-REIT) projected distribution yield of more than 11% could continue to attract income-seeking investors despite prolonged vacancies and leasing uncertainties.
RHB Research maintained its “buy” call on the REIT but lowered its target price to 78 sen from 87 sen, implying a 37% upside from the reference share price of 57 sen.
The research house expects Sentral-REIT to deliver a distribution yield of 11.4% in the financial year ending Dec 31, 2027 (FY27), supported by stable occupancy and modest rental growth.
“While prolonged leasing uncertainties have weighed on its share price, we believe near-term DPU (distribution per unit) delivery remains intact, with much of the downside risk already reflected in its current valuation,” it said.
Hong Leong Investment Bank (HLIB) Research also maintained its “buy” recommendation and target price of 73 sen, with a projected distribution yield of around 11%.
For the nine months ended Sept 30, 2026 (9M26), Sentral-REIT’s core earnings rose 0.5% year-on-year (y-o-y) to RM59.7mil, meeting 76% and 74% of RHB Research’s and consensus full-year forecasts, respectively.
Revenue increased 3% to RM146.1mil, supported by positive rental reversions and contributions from Arcoris Mont Kiara, which was acquired in December 2025.
Portfolio occupancy improved to 90% from 89% in the preceding quarter, mainly driven by stronger retail leasing activity.
However, net property income (NPI) margin narrowed to 73.9% from 76.3% a year earlier due to higher operating costs and the inclusion of lower-margin retail assets.
RHB Research cautioned that leasing challenges at Sentral Building 2 (SB2) could persist longer than anticipated, with vacancies now expected to continue throughout FY27.
Factoring in marketing periods, fit-out requirements and potential leasing incentives, the research house has deferred the expected RM4mil to RM5mil annual NPI recovery to FY28.
It consequently lowered its FY27 earnings forecast by about 5%.
Meanwhile, about 15% of Sentral-REIT’s net lettable area is due for renewal in the fourth quarter of FY26.
Management indicated that most leases were in the final stages of negotiation, with a substantial portion involving a single tenant whose significant investment in the premises could support retention prospects.
RHB Research also flagged uncertainty surrounding a key tenant’s potential space consolidation at Menara Shell, although its lease runs until 2028, providing income visibility through FY27.
HLIB Research said reducing the REIT’s gearing, which stood at 45.2%, was not an immediate priority as management focused on diversification and asset recycling.
The vacant space at SB2 has attracted preliminary interest from potential buyers, although management has no plans to undertake fit-out works ahead of a possible disposal.
Other properties could also attract buyer interest given their locations and scale, but the timing of disposals would depend on market conditions.
For future acquisitions, management is prioritising industrial and logistics assets, followed by healthcare and retail properties, with a preference for triple-net lease arrangements.
On rental prospects, management expects low-to-mid single-digit rental reversions across its office and retail portfolios, supported by healthy retail tenant demand.
RHB Research expects FY26 DPU to rise to approximately 6.3 sen from 6.15 sen in FY25, supported by manageable lease expiries and stable occupancy.
It believes Sentral-REIT’s share price weakness largely reflects broader sector valuation pressures, prolonged asset-specific vacancies and leasing uncertainties.
The research house lowered its dividend discount model-derived target price after factoring in weaker FY27 earnings and raising its risk-free rate assumption to 4% from 3.5%.
Nevertheless, it believes the REIT’s attractive forward yield provides income compensation while management works to address its leasing challenges.
