What You Must Know About Hektar Real Estate Investment Trust Before Investing

Hektar REIT is the first listed retail-focused REIT in Malaysia. It was listed on 4 December 2006 with an initial portfolio of 2 properties valued at RM 559.4 million. 10 years after its IPO listing, Hektar REIT has a portfolio of 5 properties valued at RM 1.09 billion as at 31 December 2016. In this article, I’ll list down 9 quick facts about Hektar REIT before you invest.

#1: Stock Symbol

Ticker Symbol: KLSE: HEKTAR / KLSE: 5121
Market Capitalization: RM 535.9 Million (22 December 2017)

Share Price: RM 1.16 (22 December 2017)

Industry: Reit

Syariah Compliant: Nope

#2: The Business

In 2016, Hektar REIT derives income from the following properties:

1. Subang Parade
   Subang Parade is the first regional mall established in Subang Jaya, a matured township which is 25 km away from Kuala Lumpur. In 2016, it was valued at RM 427.2 million, accounting for 39.1% of the value of its portfolio. It has recorded 93.0% in occupancy rate with a pool of 122 tenants. This includes key tenants such as Parkson, Digital One, and Celebrity Fitness. In 2016, Subang Parade has generated RM 49.0 million and RM 31.5 million in gross revenue and net property income respectively.
   
   
2. Mahkota Parade
   Mahkota Parade is the first regional mall established in Melaka town. In 2016, it was valued at RM 322.4 million, accounting for 29.5% of the value of its portfolio. It has recorded 96.4% in occupancy rate with a pool of 106 tenants. This includes major tenants such as Parkson, Seleria, and Ampang Superbowl. In 2016, Mahkota Parade has made RM 40.2 million and RM 22.2 million in gross revenue and net property income respectively.
   
   
3. Wetex Parade
   Wetex Parade is an integrated retail development located in Muar, Johor. Classic Hotel which is located on top of Wetex Parade forms part of the integrated development. Classic Hotel is leased to a hotel operator under a 10-year net lease since its acquisition in May 2008. In 2016, Wetex Parade was valued at RM 135.2 million, accounting for 12.4% of the value of its portfolio. It has recorded 100% in occupancy rate with a pool of 76 tenants. This includes major tenants such as The Store, Watsons, and Living Cabin. In 2016, Wetex Parade has contributed RM 13.6 million and RM 8.1 million in gross revenue and net property income respectively.
   
   
4. Central Square
   Central Square is the main retail centre in Sungai Petani, Kedah. In 2016, Central Square was valued at RM 95.7 million, accounting for 8.8% of the value of its portfolio. It has recorded 96.6% in occupancy rate with a pool of 70 tenants. This includes major tenants such as The Store, Perfect Mobile Village and MBO Cinemas. In 2016, Central Square has contributed RM 10.3 million and RM 5.8 million in gross revenue and net property income respectively.
   
   
5. Landmark Central
   Landmark Central is a prime neighbourhood mall in Kulim, Kedah. In 2016, Landmark Central was valued at RM 112.0 million, accounting for 10.3% of the value of its portfolio. It has recorded 98.9% in occupancy rate with a pool of 67 tenants. This includes key tenants such as Giant Superstore, The Store and Big Cinemas. In 2016, Landmark Central has contributed RM 11.5 million and RM 6.7 million in gross revenue and net property income respectively.

#3: The Financials

Hektar REIT has acquired Central Square and Landmark Central in 2012. Both properties have contributed their first full financial results in the year 2013. Since then, Hektar REIT has reported stable gross revenue, net property income, and realised earnings over the last 4 years. From 2012 to 2013, Hektar REIT has maintained its distributions per unit (DPU) at RM 0.105 over the last 5 years.

Source: Annual Reports of Hektar REIT

Source: Annual Reports of Hektar REIT  

#4: Major Acquisition

On 18 September 2017, Hektar REIT has completed its acquisition of Segamat Central, formerly known as 1 Segamat, for RM 104.0 million. As at 30 September 2017, Segamat Central has recorded a 95.3% occupancy rate. Upon this acquisition, Hektar REIT has enlarged its portfolio to 6 properties valued at RM 1.19 billion as at 30 September 2017.

#5: Lease Profile

As at 30 September 2017, Hektar REIT derives income from a pool of 525 tenants. 31% of its leases would expire in the financial year 2019 and 2020.

Source: Q3 2017 Financial Results Presentation of Hektar REIT

#6: Valuation

As I write, Hektar REIT is trading at RM 1.16 a unit.

As at 30 September 2017, Hektar REIT has reported having RM 1.38 in net asset value a unit. Thus, its current P/NAV works out to be 0.84.

Hektar REIT adopts a distribution policy to declare and pays out at least 90% of its distributable income on a quarterly basis. In 2017, Hektar REIT has paid out 7.4 sen in distributions per unit (DPU) over a period of 8 months. This includes 2.3 sen in Q1 2017 and 4.0 sen for a period of 5 months (Q2 2017, July 2017 and August 2017). The DPU for July and August 2017 was made in line with the rights issue for the acquisition of Segamat Central.

As such, Hektar REIT has paid out, on average, 0.788 sen in DPU per month. If Hektar REIT is able to maintain its average DPU of 0.788 sen for the next 12 months, it would pay out 9.456 sen in DPU, a drop from DPU of 10.5 sen over the last 5 years.

As such, its gross dividend yield is expected to be 8.15%. For individual investors, it is prudent to deduct 10% withholding tax from 9.456 sen when calculating your net dividend yield, as such, I would expect net dividend yield to be 7.34%.

#7: Debt Profile

As at 30 September 2017, Hektar REIT has recorded RM 550.3 million in total borrowings. Its debt works out to be 44.8% of Hektar REIT’s total asset value of RM 1.23 billion, thus, is in line with its policy to maintain below 50% in debt-to-total assets. The average cost of debt is 4.4%.

#8: Investor Relations

For further enquiries or to request for additional investment information on Hektar REIT’s Investors Relation matters, you may contact:
Telephone: +603 6205 5570

Website: http://www.hektarreit.com/investor_enquiry_form.php

#9: Major Shareholders

As at 31 December 2016, the substantial shareholders of Hektar REIT are:

– Hektar Black Sdn Bhd: 40.09%

– Frasers Centrepoint Trust: 31.17%

– Valuecap Sdn Bhd: 2.78%

– AIA Bhd: 2.77%

– Ascentpac Sdn Bhd: 1.00%

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