SENTRAL: REIT Performance Aligns with Expectations, Strategic Initiatives Drive Future Growth

A recent investment bank research report indicates that the performance of a prominent Real Estate Investment Trust (REIT) was largely within expectations for the nine months ending September 2025 (9M25). Despite some immediate operational challenges, strategic asset management and upcoming acquisitions are poised to drive future growth, maintaining a positive outlook from analysts.

Performance Review

For 9M25, the REIT reported a core net profit of MYR59.4 million, a slight decrease of 2.4% year-on-year (YoY), aligning closely with both internal and consensus full-year estimates. No dividend per unit (DPU) was declared for 3Q25, consistent with its semi-annual payout policy, and gearing remained stable at approximately 45%.

Revenue for 9M25 saw a modest dip of 1.3% YoY to MYR141.9 million. This was primarily attributed to softer occupancy rates at one of its key assets, Menara Shell, following the departure of a major tenant last year. Additionally, higher operating expenses stemming from one-off maintenance repairs in 3Q25 contributed to a 2.3% YoY decline in Net Property Income (NPI) to MYR108.3 million. However, the REIT demonstrated resilience in managing its interest expenses, which fell by 2.1% YoY, supported by an earlier interest rate swap. Overall occupancy rates showed an encouraging improvement, rising to 86% from 85% in 2Q25 and 84% in 3Q24.

Strategic Outlook

The investment bank anticipates a slight improvement in the REIT’s 4Q25 performance, bolstered by steady occupancy levels and the full-quarter contribution from two new tenants at Menara Shell. Progress on lease renewals is also positive, with only 14% of total net lettable area (NLA) remaining up for renewal in 3Q, down from 21% in 2Q. Management remains committed to low-to-mid single-digit rental reversions and is actively pursuing portfolio diversification away from its current office-heavy concentration.

Crucially, the upcoming disposal of the long-vacant Wisma Sentral Inai for MYR135 million, expected to conclude by 4Q25, is projected to significantly boost portfolio occupancy to approximately 94%. This transaction will also free up capital, which the REIT plans to utilize for reducing borrowings or funding yield-accretive assets. Among these is the fully tenanted Arcoris Plaza acquisition, also expected to complete in 4Q25, further enhancing the REIT’s asset base.

Investment Recommendation

Following the results, the investment bank has adjusted its FY25-26 earnings estimates downwards by approximately 3% and 7% respectively, reflecting updates in bond yield assumptions and slower occupancy growth at Menara Shell. Nevertheless, the investment bank maintains its Buy rating for the REIT, setting a target price that suggests a significant upside potential for investors. Key risks highlighted include lease non-renewals and lower-than-expected rental reversions.