PETALING JAYA: Sentral real estate investment trust (REIT) is poised to deliver stable performance in 2025, supported by its proactive strategies to manage occupancy and optimise its financial structure.
Brokerages expressed optimism about its prospects, highlighting the REIT’s initiatives to address vacancies and maintain competitiveness in a challenging office market.
RHB Research observed that the REIT’s earnings were expected to improve as it sought to fill vacant space in Menara Shell, which accounts for 5% of its net lettable area (NLA).
“We expect the REIT’s blended occupancy rate to improve in financial year 2025 as it gradually fills the space vacated in Menara Shell (5% of portfolio NLA), as we think the flagship asset should be attractive for prospective tenants,” the brokerage stated.
The upcoming lease renewals, which represent 18% of the REIT’s NLA, were also viewed favourably by RHB Research.
“Furthermore, most of the REIT’s 18% of NLA up for renewal in 2025 consists of its long-term tenants in Cyberjaya, as well as tenancies in Menara Shell and Platinum Sentral,” it noted. RHB Research maintained a “buy” rating with a target price of 91 sen, citing an attractive dividend yield.
“We continue to like the REIT for its attractive dividend yield of 8% and stable earnings outlook.”
On the financial front, Sentral-REIT recently implemented an interest rate swap to convert RM317mil of floating-rate debt into fixed rates, increasing the proportion of fixed-rate borrowings to 51% from Jan 9, 2025.
RHB Research commented, “We think the REIT could potentially miss out on interest cost savings in the short term, but management intends to raise the proportion of its fixed rate borrowings further to ensure a more stable funding structure in the long term.”
Hong Leong Investment Bank (HLIB) Research also expressed a cautious but stable outlook for Sentral-REIT in 2025, emphasising challenges in the office market due to oversupply.
“Savills projects office supply growth in Greater KL is expected to slow to plus 0.5% to 1% in 2025, slightly softer from the plus 2% to 3% growth in 2024, which we view as a positive development for rental yields,” it said. However, it maintained a conservative stance on rental reversion.
“We conservatively bake in a flat rental revision for the next one year, in line with management’s guidance as we expect landlords to keep their prices competitive to retain existing tenants.”
The potential disposal of Wisma Sentral Inai, which has been vacant since the second quarter of 2022, was highlighted as a strategic move to lower gearing.
HLIB Research explained, “Should this come to fruition, the proceeds could potentially be used to lower its gearing level, which currently stands at 44.6%.
“On the other hand, Wisma Sentral Inai (vacant since the second quarter of financial year 2022) is still under discussion for disposal – and if sold, the proceeds can be used to reduce its gearing level to 38.8% (from 44.6% currently).”
For 2024, Sentral-REIT reported a 20.4% year-on-year increase in net property income to RM150.37mil, driven by higher revenue of RM191.15mil, which rose 18.6%.
However, the full-year distribution per unit or DPU declined to 6.36 sen, compared with 6.68 sen in 2023.
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