Hektar REIT eyes asset purchase, enhancement to raise returns

The firm is on track to achieve RM2.4b asset base and will look at yield accretive assets to add to its portfolio


Hektar Real Estate Investment Trust (REIT) is in discussions to acquire a new mall as part of its plan to double its asset base to RM2.4 billion by 2026.

The retail-focused REIT currently has six malls in its portfolio valued at RM1.2 billion.

Its holding company Hektar Asset Management Sdn Bhd’s chief corporate officer Zarina Halim said the REIT is on track to achieve this target and will look at yield accretive assets with single-ownership structures to add to its existing portfolio.

“Our acquisition strategy is on track and we are now in active negotiations on one particular asset,” she told the press after Hektar REIT’s AGM in Kuala Lumpur yesterday.

Zarina said property yields of between 6% and 7% are acceptable for the group and malls with single owners are preferred or malls with fragmented ownership structures.

Other land matters such as mall tenure and title status will be considered in the evaluation process, she added.

Zarina said Hektar REIT will consider the merit of all financing options to fund proposed acquisitions, with the REIT historically utilising a combination of cash and equity.

At the AGM, shareholders approved the resolution to allow the company to allot and issue new units providing it does not exceed 20% of its existing fund size.

The proposed acquisitions will be outside the Klang Valley in line with Hektar REIT’s strategy to diversify away from saturated and highly competitive markets.

Hektar REIT is among the smaller listed REITs on Bursa Malaysia with its mall assets focused on under-served markets in high catchment areas.

Only one of its malls is in the Klang Valley, namely Subang Parade, which noted a flat rental reversion of 0.1% and 21.2% decline in footfall last year.

This is against the total 5.4% rental reversion noted across all its six malls in 2018, led by Kulim Central at 16.4%.

Subang Parade makes up 36% of its total RM1.2 billion in asset value and Hektar REIT has allocated RM30.5 million in asset enhancements for the mall.

Hektar Asset Management CEO Datuk Hisham Othman said the enhancement initiatives are to be completed this year and will result in better tenancy mix and offerings at the mall.

“As a result, people will come back (to the mall). We will enjoy the returns in terms of better footfall which should translate into better rental rates which we can demand from our tenants,” he said at the same briefing.

The RM30.5 million budgeted asset enhancement will include increasing the mall’s food and beverage (F&B) offerings and upgrading existing outlets.

RM8 million was spent on reducing energy consumption and, as a result, Subang Parade mall achieved a 34% reduction in monthly energy consumption.

Hisham said energy consumption reduction translates into direct cost savings which bolsters net property income for the group.

Hektar REIT is targeting to reduce average energy consumption at all its malls by at least 10% to 20% by 2022.

For the fiscal year ended Dec 31, 2018, Hektar REIT posted a 1.3% year-on-year (YoY) increase in net profit to RM33.12 million while turnover came in stronger at RM135.1 million, up 7.6% YoY.

This was owing to the higher net property income of RM78.7 million, which was 6.8% higher YoY, and positive rental reversions recognised by the company.

Its Johor-based Segamat Central was the only mall in Hektar REIT’s portfolio to register a negative rental reversion in 2018 at 9.8%, and a market study was conducted earlier this year ahead of planned asset enhancement initiatives.

Zarina revealed one of the early takeaways from the study was the demand for more fast food operators in the mall which recorded 3.2 million visitors in 2018.

Management is looking into bringing in more fast food players as part of the asset enhancement initiatives as F&B is generally the strongest performing sector even during challenging and oversupplied market conditions in the retail space.