Hektar REIT's Melaka land deal attractive and yield-accretive, says HLIB

• Last Friday, Hektar announced that it is buying the land for RM40 million in the Durian Tunggal sub-district from KYS College Sdn Bhd in a related party transaction.

KUALA LUMPUR (July 14): Hektar REIT's (KL:HEKTAR) proposed acquisition of Melaka land is being done at an attractive price and if concluded will boost the real estate investment trust’s income, a research house said on Monday.

The acquisition-and-leaseback deal for 41.8 acres of Melaka leasehold land carries an implied valuation of RM22 psf, a 21% discount to this year's median land transaction price of about RM28 psf, according to Hong Leong Investment Bank (HLIB).

“Overall, we are positive on this deal due to its yield-accretive nature, significant de-risking via the triple net lease, and its attractive valuation,” said HLIB in a note, one of only two research houses covering Hektar.

Last Friday, Hektar announced that it is buying the land for RM40 million in the Durian Tunggal sub-district from KYS College Sdn Bhd in a related party transaction.

The trust also signed 30-year lease agreements with KYSA Education Sdn Bhd, the operator of Kolej Yayasan Saad, a fully residential private school in Melaka founded by businessman Tan Sri Halim Saad.

The land is offering a net rental yield of 5.3%, which is higher than the projected 4.9% yield in net property income for the trust’s entire portfolio in 2026, while gearing may increase just 0.9 percentage point to 42.7% post-acquisition, according to HLIB’s estimates.

Overall, HLIB forecasts the new properties to boost Hektar’s net profit by 2% for 2026 and 3.4% for 2027, and lifts its target price for the trust by five sen to 46 sen.

However, the house maintained its ‘hold’ recommendation as forward distribution yield declines from higher unit prices following the recent reduction in the overnight policy rate.

Hektar REIT units remained flat at 44 sen at the time of writing on Monday, giving the trust a market value of RM312 million.

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