KUALA LUMPUR: Hektar Real Estate Investment Trust's (Hektar REIT) decision to acquire Kolej Yayasan Saad Melaka (KYSM) reflects its commitment to pursue growth in the environmental, social, and governance (ESG) sectors of new business landscapes.
Executive director and chief executive officer Johari Shukri Jamil said the acquisition underscores the company's commitment to societal growth and responsible governance and signifies much more than a financial move.
"Investment in education is an investment in the future.
"In our strategic decision to diversify, we are looking at financial growth and fulfilling a deeper societal obligation," he told Business Times.
Hektar REIT recently acquired KYSM, a private boarding school based in Ayer Keroh, Melaka, for RM150 million.
The targeted acquisition represents a departure from the retail-focus strategy of Hektar REIT.
The acquisition includes a 30-year quadruple-net lease agreement with KYSA Education Sdn Bhd, projected to yield an average annual return of 7.9 per cent.
The acquisition is expected to be financed through a combination of a placement of up to 20 per cent of the Hektar REIT's existing units, internally generated funds, and external borrowings.
This move will augment the total assets of Hektar REIT to RM1.35 billion, representing an increase of 12.4 per cent.
The financial strategy aims to maintain liquidity while reducing the gearing ratio from the current level of 44.3 per cent to below 40 per cent.
As of the second quarter (Q2) of 2023, Hektar REIT showed strong financial performance, with a reported revenue of RM27.2 million and a net property income (NPI) of RM15.5 million, marking a 13 per cent year-on-year (YoY) growth.
Based on a September 13 report by AmInvestment Bank Bhd, the KYSM acquisition allows for a broader property portfolio and lessens the dependency on the retail sector for Hektar REIT.
The report also highlights that the four-tier lease agreement ensures a consistent income stream and limited occupancy risks for Hektar REIT over the next 30 years.
Industry-wise, the National Property Information Centre (NAPIC) reported that the total occupancy rate for retail space was 75.4 per cent in 2022, and the competition should only increase with 1.38 million square metres of incoming supply.
While retail assets will continue to be the cornerstone of the portfolio, Hektar REIT will gradually incorporate non-retail assets to constitute 20 per cent of the asset mix within the next five years, according to Johari.
"We are also investing RM1.5 million in solar PV panels at KYSM, directly contributing to our nation's green energy goals and aligning our assets with our ESG objectives.
"This acquisition assures our investors and stakeholders of a holistic value proposition that combines financial returns with sustainable and ethical practices, thereby fostering a legacy of growth, responsibility, and societal well-being," Johari said.
