Sentral REIT may sell assets to diversify portfolio

KUALA LUMPUR: Sentral REIT could dispose of some properties in the near term as it looks to diversify its portfolio, with industrial and logistics assets emerging as its preferred investment targets, according to Hong Leong Investment Bank (HLIB).

The research firm said Sentral REIT's management was prioritising portfolio diversification and asset recycling over reducing its gearing, which stood at 45.2 per cent as at the third quarter ended Sept 30, 2026.

"Lowering gearing is not a priority for now as management is instead focused on diversification and asset recycling, and we could see some disposals in the near term.

"The vacant Sentral Building 2 has drawn early-stage interest from buyers, and management has no plans to fit out the space. It also sees its other assets as attractive to buyers given their location and size, but timing will decide when it sells," HLIB said in a note.

For future acquisitions, Sentral REIT is prioritising industrial and logistics properties, followed by healthcare and retail assets, with a preference for triple-net leases.

Meanwhile, HLIB said lease renewals involving 15 per cent of the REIT's net lettable area in the fourth quarter would be a key factor influencing its earnings in the financial year ending Dec 31, 2027.

It said management is confident of securing the renewals, with rental reversions expected to remain in the low-to-mid single-digit range for both office and retail properties.

Sentral REIT's portfolio occupancy improved to 90 per cent in the third quarter from 89 per cent in the preceding quarter.

HLIB maintained its "Buy" recommendation on Sentral REIT with an unchanged target price of 73 sen, representing a potential upside of 28.2 per cent from 57 sen.

The research firm also maintained its earnings forecasts after Sentral REIT's third-quarter results came in within expectations.

The REIT's core net profit fell 3.2 per cent year-on-year to RM19.7 million in the third quarter as higher property expenses and administrative costs offset additional rental income.

Revenue rose 0.7 per cent, supported by contributions from Arcoris Mont' Kiara, which was acquired on Dec 30, 2025.

Property expenses increased 8 per cent due to the enlarged portfolio and higher utility costs, resulting in a 1.8 per cent decline in net property income.

For the first nine months, core net profit stood at RM59.3 million, accounting for 73.6 per cent of HLIB's full-year forecast and 73 per cent of consensus estimates.