Hektar REIT looks to expand portfolio

By Yong Min Wei of theedgemalaysia.com   Thursday, 03 March 2011 15:18

KUALA LUMPUR: Hektar Real Estate Investment Trust (Hektar REIT), the owner of three shopping malls, is anticipating to increase its portfolio this year riding on its confidence in financing yield-accretive acquisitions. Hektar REIT chairman and CEO Datuk Jaafar Abdul Hamid said its financing ability had improved in the past year and that its management team would continue to look for potential acquisitions of shopping centres in Malaysia. "While there were no new acquisitions in 2010, we did identify some good candidates and conducted negotiations. Ultimately, we believe that improving market sentiment has prompted asset owners to hold on to their properties for now. We still remain in contact with them," he said in a letter to unitholders enclosed with Hektar REIT's 2010 annual report. According to Jaafar, Hektar REIT is confident in its ability to finance net asset yield-accretive acquisitions as its current trading price range remained above net asset value coupled with access to affordable banking financing. He added that any proposed acquisition would require additional issuance of Hektar REIT units. For FY10 ended Dec 31, Hektar REIT's net profit rose 5.5% to RM39.18 million from RM37.13 million in FY09. Revenue grew 3.6% to RM90.87 million from RM87.71 million mainly due to improvement in rentals and car park income in 2010. It posted basic earnings per share of 12.24 sen in FY10 while net assets per share stood at RM1.32 as at Dec 31. Hektar REIT on Wednesday, Mar 2 shed three sen  to close at RM1.29 with turnover of 94,700 units. The counter had traded to a 52-week high of RM1.35 on Dec 30, 2010 and a 52-week low of RM1.14 on Mar 2, 2010. When contacted on Wednesday, Hektar Asset Management Sdn Bhd general manager, strategy, Lim Ye Jhen, declined comment on whether Hektar REIT would soon be acquiring a shopping centre but stressed the REIT was always open to negotiations. An analyst familiar with REITs said a shopping mall in Petaling Jaya with a net lettable area (NLA) of about 400,000 sq ft which opened in recent years, has drawn the attention of several players lately. The mall is said to have easy access to several highways and a stone's throw from an affluent neighbourhood in the city. "Several REITs have indicated they are in some negotiations to acquire medium-sized shopping centres and office buildings in the Klang Valley. However, they are tight-lipped on the location and didn't give much details other than the NLA," said the analyst, adding that there were malls with negative revisions as well. As Malaysia's first "retail focused REIT", Hektar REIT's current portfolio consists of Subang Parade in Subang Jaya, Mahkota Parade in Melaka and Wetex Parade in Muar. Listed since December 2006, Hektar REIT is managed by Hektar Asset Management, which in turn is a subsidiary of Hektar Group. According to its 2010 annual report, Hektar REIT's portfolio of shopping centres has a combined value of RM752 million as at Dec 31, 2010, a total NLA of 1.1 million sq ft and 95.5% occupancy rate. On Hektar REIT's borrowings in 2011, Jaafar said it had secured an Al-Murabahah overdraft facility with two tranches worth RM184 million and RM150 million expiring in 2011 and 2013 respectively. Collectively, Hektar REIT's gearing ratio was 42.7% of gross asset value and the weighted average cost of financing as at end FY10 was 3.71%. "The first tranche of debt at RM184 million expires in December 2011. We are confident of renewing the facilities based on our long-standing relationships with our bankers, who have supported Hektar from day one. Depending on market conditions, we have factored in a 40-basis point increase in financing rates for 2011," he pointed out. On its strategy and outlook, Jaafar said the key in maintaining a shopping centre's strategic advantage was by offering a compelling tenant mix, stressing that the optimal tenant mix depended on a variety of factors including demographics, psychographics and level of competition. "We continually conduct surveys on shopper demographics and receive informal feedback on a regular basis to fine-tune our understanding of market needs. Each market may have cultural differences with unique shopper demands," he said, adding it was important to refine the tenant strategy of each shopping centre to local market conditions.