KUALA LUMPUR: Hektar Real Estate Investment Trust's core net profit for financial year 2023 is expected to increase by 18.9 per cent following its acquisition of Kolej Yayasan Saad.
Hong Leong Investment Bank Bhd (HLIB) said accounting for the expansion in share base of 20 per cent, Hektar Reit's FY23 earnings per unit, however, is expected to be diluted by 1.8 per cent.
Hektar Reit is buying KYS, a co-educational private school in Melaka, for RM150 million to be partially satisfied through 20 per cent placement of Hektar's existing issued units.
HLIB assumed that the remaining balance of RM93 million would be funded by debt as Hektar's limited cash available in its balance sheet.
On top of that, the company's gearing is anticipated to go up by 46 per cent as at second quarter of 2023 from 44 per cent, which comes close to the permissible gearing limit of 50 per cent.
The property is being leased to the current operator of KYS College, KYSA Education Sdn Bhd from June 22 this year.
This is on a quadruple net lease basis, where the operator is responsible for operation, maintenance and repair of the property.
"Hektar is entitled to a guaranteed rent of RM8.1 million for the first year, followed by a 2.5% yearly step up," HLIB said.
The rental may seem to contribute small yield of 5.4 per cent in the first year, however, it is actually well compensated by 30 year stable rental stream with annual increment of 2.5 per cent.
HLIB said apart from that, timely diversification from the highly competitive retail industry specifically for neighbourhood malls as well as minimal operation expenditure required.
HLIB maintained a "Hold" call on Hektar with target price of RM0.60.
