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This article first appeared in The Edge Financial Daily, on April 26, 2016.

 

KUALA LUMPUR: Hektar Real Estate Investment Trust (REIT), which expects to maintain its distribution per unit (DPU) at 10.5 sen in the current financial year ending Dec 31, 2016 (FY16), is also identifying potential acquisition targets across the country to widen its portfolio under management.

Its portfolio currently comprises shopping malls: Subang Parade in Subang Jaya, Selangor; Mahkota Parade in Melaka; Wetex Parade in Muar, Johor; and Central Square and Landmark Central in Kedah. They had a total net lettable area (NLA) of 1.8 million sq ft, with an average occupancy rate of 96.6% as at Dec 31, 2015.

The REIT’s chairman and chief executive officer Datuk Jaafar Abdul Hamid said the trust manager is keen to purchase a neighbourhood mall in one of the country’s second-tier cities, but declined to specify a time frame.

“The vendors are willing to sell at a lower price in this current environment, but we want to get the best deal. The asset has to be the only mall in the area, similar to [our] Wetex Parade in Muar. It also has to be yield-accretive — above 6.9%,” he said.

Jaafar said the asset acquisition will be funded by a combination of bank borrowings and an issuance of securities.

According to the REIT’s 2015 annual report, its gearing grew to 44.3% as at Dec 31, 2015, from 40% a year ago, due to asset revaluation loss. Its balance sheet revealed that its total borrowings rose 8.9% to RM494.21 million as at end FY15, versus RM453.88 million in FY14, while cash and bank equivalent stood at RM19.09 million, up 29.5% from RM14.74 million in FY14.

At the current gearing level of 44.3%, Hektar REIT said there is still room to borrow an additional RM63.94 million before triggering the 50% limit permitted under the Securities Commission of Malaysia Guidelines on REITs.

Meanwhile, Jaafar said 37% of its total monthly rental income will expire in FY16, and that the trust manager is negotiating with existing tenants for renewal.

“We are also negotiating with two major tenants in Central Square, namely Giant Superstore and The Store, for new leases,” he shared.

But with retail outlook remaining lacklustre, with retailers continuing to be skittish, he said rental reversion in the urban area will face more pressure, compared to smaller towns.

“A significant number of our loyal retailers are seeking our support to reduce their rent until the tide is turned ... I feel it is now time for us to demonstrate our loyalty to them during this extremely trying period,” he added.

Notwithstanding that, he expects Hektar REIT’s net property income (NPI) to be sustained at current levels.

Meanwhile, Hektar REIT intends to continue its mall enhancement initiatives this year, and has allocated RM20 million to raise the overall NLA of Landmark Central by 20,000 sq ft to 300,000 sq ft.

Landmark Central, located in Kulim, Kedah, was acquired by the REIT in 2012. Its major tenants include Giant Superstore, The Store, MBO Cinemas and Ole Ole Superbowl. The asset enhancement initiative is to be completed at the second quarter of 2017.

The group is also looking at adding more cinema halls in Subang Parade.

The REIT also announced yesterday that its NPI for the first quarter ended March 31, 2016 (1QFY16) came in at RM18.67 million, almost flat when compared with RM18.62 million a year earlier.

In its bourse filing, the retail-centric REIT said its revenue for the quarter grew 1.3% to RM31.6 million from RM31.21 million in 1QFY15. Its distributable income for the quarter amounted to RM10.42 million or 2.6 sen per unit.

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