Hektar REIT seeks unitholders’ nod for RM125m KYS KL East school leasehold acquisition

PETALING JAYA (Aug 24): Hektar Real Estate Investment Trust (Hektar REIT) is seeking unitholders’ approval to acquire KYS College Sdn Bhd’s (KCSB) leasehold interest in part of a freehold site in Setapak, Kuala Lumpur, together with existing school buildings and a new building to be constructed, for RM125 million.

It said in a Bursa Malaysia filing on Monday (Aug 24) that the proposed transaction involves KYS KL East International School. The underlying 9.483-acre land is owned by Sime Darby Property (KL East) Sdn Bhd, while KCSB holds a registered master lease over about six acres, running from March 1, 2016 to Feb 28, 2046.

In its circular to unitholders dated Aug 24, Hektar REIT said the RM125 million consideration comprises RM106.55 million in cash and RM18.45 million in new Hektar REIT units.

The consideration units will be issued at a price representing a discount of not more than 5% to the five-day volume-weighted average market price of Hektar REIT units up to and including the date the sale and purchase agreement (SPA) becomes unconditional, subject to a minimum issue price of 43.85 sen per unit. At the floor price, up to 42.08 million new units may be issued.

The cash portion will be funded through a combination of internally generated funds, bank borrowings and/or debt or hybrid instruments, taking into account Hektar REIT’s future gearing and working-capital requirements.

The purchase consideration was arrived at on a willing-buyer willing-seller basis and matches the RM125 million market value assessed by Raine & Horne International Zaki + Partners Sdn Bhd as at April 15, 2026. The valuer adopted the income approach as its primary valuation method, while its cost approach produced a value of RM100 million.

Sale-and-leaseback arrangement

Upon completion of the acquisition, the master lease and proposed supplemental master lease agreement will be novated to MTrustee Bhd, acting as trustee for Hektar REIT. The trustee will then sub-lease the property to KCSB or its nominee to continue operating KYS KL East International School.

The proposed sub-lease will run for an initial 30 years, with automatic extensions for two further 30-year terms and a final nine-year term, subject to there being no material outstanding breach.

First-year rent will be based on RM3.30 psf per month on the relevant building gross floor area (GFA), with the base rent increasing by 10% every three years during the initial term. Rent for the renewal periods will be based on prevailing market rates.

The existing school facilities comprise a four-storey pre-school building and a five-storey primary school building with a combined GFA of 44,969 sq ft.

KCSB has undertaken to construct a seven-storey secondary school building with a GFA of 196,086 sq ft at its own cost, taking the total GFA to 241,055 sq ft upon completion.

As at Aug 14, however, the development order and building-plan applications for the new building had yet to be submitted. KCSB is required under the SPA to complete the new building and obtain its certificate of completion and compliance (CCC) within 24 months from the date the SPA becomes unconditional.

The RM70 million final balance of the purchase consideration is payable only after the new building’s handover conditions are met. These include, among others, architect certification that it was built in accordance with agreed specifications, approved plans and applicable laws, issuance of the CCC, and a valuation confirming that the combined market value of the master lease, existing buildings and new building is at least RM125 million.

Master lease extension subject to consent

As part of the transaction, KCSB is required to obtain Sime Darby Property (KL East)’s consent to extend the master lease to a total tenure of up to 99 years, comprising a new initial 30-year term, two further 30-year extensions and a final nine-year term.

Negotiations between KCSB and Sime Darby Property (KL East) were ongoing as at Aug 14, with the lessor’s consent expected by end-November 2026. The lessor’s consent and execution of the supplemental master lease agreement form part of the conditions precedent to the SPA.

Other approvals and conditions include approval from Hektar REIT’s unitholders, consent from TMF Trustee Malaysia Bhd as the existing chargee, and, if applicable, approval from the Economic Planning Unit in relation to the acquisition of the buildings.

Bursa Securities approved on Aug 5, 2026 the listing and quotation of up to 42.08 million consideration units on the Main Market, subject to conditions including compliance with the public unitholding spread requirement and other applicable listing requirements.

Initial impact before longer-term contribution

Hektar REIT said the proposed acquisition is not expected to have any material effect on its earnings and distributable income for the financial year ending Dec 31, 2026.

On a pro forma basis, the proposed transaction is expected to reduce earnings per unit (EPU) and distribution per unit (DPU) initially, reflecting, among others, the enlarged unit base, financing costs, transaction-related expenses and negative rental carry before the new building contributes income.

The circular’s illustration shows EPU/DPU declining from 2.00 sen to 1.39 sen after incorporating the existing buildings, before improving to 1.85 sen after the new building is included.

The independent adviser said rental escalation and income from the new building are expected to support earnings and DPU over the longer term.

On a pro forma basis, Hektar REIT’s NAV per unit would decline to RM1.01 after the acquisition of the existing buildings from RM1.05 as at Dec 31, 2025, before rising to RM1.02 after incorporating the new building.

Its gearing would increase from 0.41 times to 0.42 times following the acquisition of the existing buildings and to 0.45 times after incorporating the new building, based on illustrative borrowings of up to RM100.6 million.

The proposed acquisition would add 241,055 sq ft of GFA to Hektar REIT’s property portfolio. The circular states its existing portfolio area at about 2.58 million sq ft, predominantly measured as net lettable area, with GFA used for certain assets.

Related-party transaction

The circular classifies the proposed acquisition and lease as a related-party transaction under Bursa Malaysia’s listing requirements.

It said this arises from Tan Sri Halim Saad being the founder of KYS KL East International School and his daughter Nor Sabrina Halim being a director of Hektar Black Sdn Bhd, which is a major unitholder of Hektar REIT.

Hektar Black held a 15.76% direct stake and 0.06% indirect stake in Hektar REIT as at Aug 14. It and persons connected with it will abstain from voting on the proposal.

Independent adviser MainStreet Advisers Sdn Bhd concluded that the proposed acquisition and lease is fair and reasonable and not detrimental to non-interested unitholders, and recommended that they vote in favour of the resolution.

Hektar REIT’s board has also recommended that unitholders approve the proposal.

The unitholders’ meeting is scheduled for Nov 16, 2026. Barring unforeseen circumstances, the proposed acquisition and lease is expected to be completed by end-February 2027.

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