This article first appeared in The Edge Malaysia Weekly on August 5, 2024 - August 11, 2024

As consumer sentiment continued to improve after the pandemic, the unit price of retail-focused Hektar Real Estate Investment Trust (Hektar REIT) (KL:HEKTAR) climbed steadily as its income gradually recovered.

The REIT’s realised net income (net profit), which dropped from RM35.9 million in FY2019 to RM14.2 million and RM12.7 million in pandemic-stricken FY2020 and FY2021 respectively, jumped to RM36.4 million in FY2022 before easing to RM25.1 million in FY2023.

The REIT, whose distribution per unit dove from 7.77 sen in FY2019 to 0.9 sen in FY2020, paid out 2.53 sen per unit in FY2021. This increased to eight sen in FY2022 and five sen in FY2023.

Between March 31, 2021, and March 31, 2024 — the cut-off date for The Edge Malaysia Centurion Club Corporate Awards 2024, the REIT’s unit price (adjusted) increased from 45.7 sen to 63.5 sen, which translated into a compound annual growth rate of 6.95% over the three years, calculated based on the awards methodology.

The performance of its unit price beat that of its peers in the REIT sector, making it the winner of the Highest Returns to Shareholders Over Three Years award, its second Centurion Club award since its maiden win in 2019 for Highest Return on Equity over Three Years.

Hektar REIT’s portfolio includes shopping malls Central Square and Kulim Central in Kedah, Subang Parade in Selangor, Mahkota Parade in Melaka and Segamat Central and Wetex Parade in Johor. Altogether, there is a total net lettable area of two million sq ft, with a total asset value of RM1.4 billion as at March 31, 2024.

Subang Parade and Mahkota Parade currently make up the bulk of Hektar REIT’s portfolio value and rental revenue. The shopping malls recorded occupancy rates of 74.3% and 93.8% respectively at end-December 2023.

Overall, the REIT’s visitor traffic increased to 23.2 million in 2023, from 21.1 million in 2022, according to its 2023 annual report.

In July this year, Hektar REIT completed the purchase of Kolej Yayasan Saad in Ayer Keroh, Melaka, for RM148.5 million. This was its first non-retail acquisition. The asset is secured under a 30-year quadruple net lease agreement, providing incremental revenue annually and an average yield of 8% over the lease tenure. The latest acquisition increased the REIT’s assets under management by 12% to RM1.38 billion.

Hektar REIT is still actively looking to buy more income-generating assets and several are being considered, as it targets to double its portfolio size to RM3 billion by 2027, with non-retail assets making up as much as 20%.

In February, it announced that it was issuing five-year medium-term notes (MTN) worth RM215 million — the first issuance under Hektar MTN Satu Sdn Bhd’s MTN programme of up to RM500 million in nominal value. Proceeds from the guaranteed MTN will be used by Hektar REIT to refinance its existing borrowings as well as fund capital expenditure and initiatives to enhance Subang Parade.

Hektar REIT’s growth potential attracted the interest of Datuk Eddie Ong Choo Meng. He emerged as a substantial shareholder of the REIT in December last year after acquiring a 28.462% stake from Singapore-based Frasers Centrepoint Trust.

The Edge reported earlier that another new substantial shareholder could emerge in Hektar REIT as Hektar Black Sdn Bhd’s stake had seen interest from several suitors. Hektar Black, which is believed to be the private vehicle of Tan Sri Halim Saad, owns 17.5% of the REIT.

Meanwhile, the REIT’s manager, Hektar Asset Management Sdn Bhd, announced in June the resignation of its executive director and CEO Johari Shukri Jamil, with immediate effect, saying that he sought to pursue new opportunities after holding the post for two years.

While the REIT’s manager looks for a new CEO, Zulazman Zulkifli, currently an independent non-executive director of the REIT, has been appointed the interim non-executive chairman.

For 1QFY2024, the REIT’s net property income declined 5.5% year on year to RM14.38 million from RM15.21 million due to higher utility costs. Realised income came in at RM5.08 million, versus RM9.21 million previously. The REIT’s manager cautioned that rising living costs and inflationary pressures could affect consumer sentiment and spending trends.

“We will continue adopting prudent financial management, cost optimisation and enhancing our asset efficiency to help cushion the impact. Notwithstanding that, Hektar REIT remains positive and resilient in achieving growth backed by increased occupancy rates and improving rental reversions for properties under the portfolio,” it said on its outlook following the release of its 1QFY2024 results.

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