Hektar proves itself as a high-yield retail REIT
KUCHING: Hektar REIT (Hektar) is a pure retail REIT, comprising five retail investment properties – Subang Parade, Mahkota Parade, Wetex Parade, Central Square, and Landmark Central.
MIDF Amanah Investment Bank Bhd’s research arm ( MIDF Research) noted that Subang Parade which is located in Subang Jaya is the key investment property, contributing RM52 million or 41 per cent to Hektar total gross revenue in 2015.
This is followed by Mahkota Parade (32 per cent) and Wetex Parade (11 per cent).
As at December 2015, net lettable area under management of Hektar stood at 1.8 million square foot (sqft) while occupancy rate remained healthy at 96.6 per cent.
The research house added that excluding fair value loss of RM39.9 million, Hektar was actually profitable in 4QFY15 with core net profit at RM11 million. The fair value loss was caused by devaluation of Mahkota Parade and Central Square.
As these were non-cash item, Hektar operations were not affected and remained profitable.
“We gather that the devaluation
We gather that the devaluation loss was arisen by timing issue as the capex spent on asset enhancement initiative (AEI) requires longer time to crystalize its value while the independent valuers tend to be more conservative in their valuation in current challenging market condition. MIDF Research
loss was arisen by timing issue as the capex spent on asset enhancement initiative (AEI) requires longer time to crystalize its value while the independent valuers tend to be more conservative in their valuation in current challenging market condition,” said MIDF Research.
Marginal core earnings growth of one per cent in FY15 was driven by steady earnings contribution from its investment properties except for Mahkota Parade. Net property income from Mahkota Parade dropped 2.6 per cent on year due to stiff domestic competition.
Nevertheless, the shortfall was compensated by the higher net property income from Central Square following the completion of AEI.
Being the key earnings contributor to Hektar, Subang Parade continues to register steady earnings growth in FY15. Net property income from Subang Parade increased 4.6 per cent on year, mainly underpinned by positive rental reversion of six per cent on year.
Earnings outlook for Subang Parade remains stable as its strategic location in the heart of Subang Jaya’s commercial centre should continue to support positive rental reversion going forward opined the research house.
Hektar has been consistently distributing 10.5sen gross distribution per unit (DPU) since 2011.
“Looking ahead, we estimate DPU of Hektar to remain at 10.5sen which translates into attractive net DPU yield of 6.3 per cent based on last closing price of RM1.51. Hektar’s DPU yield of 6.3 per cent is superior, higher than peers’ average DPU yield of five per cent.”