HLIB bullish on Sentral REIT's RM70mil Mont Kiara deal secured at 42.8pct discount
KUALA LUMPUR: Hong Leong Investment Bank (HLIB) holds a positive view on Sentral Real Estate Investment Trust's (Sentral REIT) proposed RM70 million acquisition of a strategic asset in Mont Kiara, citing its yield-accretive potential and attractive purchase price—secured at a notable 42.8 per cent discount to comparable properties in the vicinity.
HLIB said the acquisition price of RM70 million for the light industrial asset at Arcoris Plaza—comprising a total net lettable area (NLA) of 67,593 sq ft (retail: 53,244 sq ft; al-fresco: 14,349 sq ft)—translates to RM1,035.60 per sq ft.
This is notably below the average market valuation of RM1,810.94 per sq ft for retail properties in Mont Kiara, it said in a note.
HLIB added that the RM70 million acquisition represents about 2.7 per cent of Sentral REIT's total asset value and will be fully financed through debt.
It said that, assuming a borrowing cost of 4.6 percent, the acquisition is projected to increase distribution income by 0.8 percent in FY2025 and by 3.3 percent in both FY2026 and FY2027, with earnings contributions expected to commence in the fourth quarter of FY2025.
Following the acquisition, Sentral REIT's gearing ratio is expected to edge up to 45.7 per cent, from 44.2 per cent previously forecasted for FY2025.
Taking into account the earnings accretion and recent share price weakness, HLIB has upgraded its recommendation on Sentral REIT to BUY, with a revised target price of 79 sen (from 78 sen, based on FY2025 distribution per unit (DPU) and a targeted yield of 8.5 per cent.
In a filing with Bursa Malaysia on Tuesday, Sentral REIT announced that it had signed a sale and purchase agreement (SPA) with UEM Sunrise Bhd's subsidiaries—Arcoris Sdn Bhd (ASB) and Sun Victory Sdn Bhd (SVSB). The deal involves the acquisition of 38 stratified retail units and 1,432 car park bays within Arcoris Plaza.
The REIT said the acquisition would allow it to capitalise on economies of scale in Mont Kiara, enabling the team to leverage its existing property management and leasing capabilities for efficient operations.
Sentral REIT, in which Malaysian Resources Corporation Bhd holds a 27.94 per cent stake, also pointed to the property's strategic location, strong accessibility, and stable rental income as key drivers of its long-term potential.
The asset is currently fully tenanted, featuring a diverse mix of food & beverage, lifestyle, health, and education operators, many of whom are under a sales turnover rental model.
The acquisition is expected to be completed in the fourth quarter of 2025 and is anticipated to contribute positively to earnings for the financial year ending Dec 31, 2025, it said in the filing.
As of end-March 2025, Sentral REIT reported cash and cash equivalents of RM24.98 million, with long-term borrowings amounting to RM1.17 billion. Post-acquisition, its gearing ratio is projected to rise slightly from 44.6 per cent to 46.1 per cent.
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