STRONG PORTFOLIO PERFORMANCE FROM ASSETS OUTSIDE KLANG VALLEY UNDERPINS 2018 RESULTS
BY Zoe Phoon
Hektar Real Estate Investment Trust (Hektar REIT), Malaysia’s first listed retail-focused REIT and which has five of its malls outside of Klang Valley, has announced a 7.6% rise in revenue to RM135.1 million and 6.8% increase in net property income to RM78.7 million for the year ended 31 December 2018.
The realised income was RM42.3million, 5.3% higher than FY2017. Overall, the market valuation of the Hektar portfolio increased by RM26.9 million in 2018.
The positive result is supported by strong portfolio performances, particularly from assets outside the Klang Valley, buoyed by the post-refurbishment and asset enhancement initiatives in the Kedah malls and positive rental reversion growth in Malacca and Muar.
For the fourth quarter of 2018, the REIT recorded higher revenue of RM33.9 million, up 1.3% compared to the corresponding period in 2017. Net property income was RM20.3 million compared RM20.9 million in 4Q17.
Hektar REIT declared a final income distribution per unit (DPU) of 2.31 sen for the fourth quarter of 2018. The Book Closing Date is 15 March 2019 and the final distribution will be made on 10 April 2019. Based on the closing price of RM1.11 on 31 December 2018, the annualised DPU for the year represented a DPU yield of about 8.1%.
Chief executive officer Dato’ Hisham Othman said Hektar’s solid track record for occupancy, year-on-year increase in revenues and net property income remains steadfast.
The year was focused on improving the shopping centres under its portfolio, including asset enhancement initiatives, energy saving initiatives, extensive tenancy remixing and reconfiguration of space on top of taking over the operations of Classic Hotel adjoining Wetex Parade in Muar.
For 2018, the REIT declared a total distribution of RM41.6 million or 9.01 sen despite the challenging market condition and growing competition.
Hisham noted the main drivers of positive rental reversions were Kulim Central with a 16.4% increase, Mahkota Parade 15%, Wetex Parade 11.8% and Central Square 11.5%.
For 2018, the overall portfolio managed to achieve a healthy rental reversion of 5.4% through about 160 new and renewed tenancies on over 827,332sq ft or 40.9% of the net lettable area. Overall occupancy was steady at 92.1%.
Overall annual visitor traffic increased to 32.1 million visits, up 9.2%, mainly due to the addition of Segamat Central. Within the portfolio, the main drivers for traffic visit increases include Central Square, up 18.4%, and Kulim Central, up 81.8%, from the previous years.
Both malls went through refurbishment and asset enhancement initiatives in 2015 and 2017 respectively and continue to show positive endorsement from shoppers and retailers alike.
Hisham said the year was not without challenges: It had to work very hard to secure the right tenants, entice new retailers and increase the marketing activities in Kulim Central to pull the crowd back following the asset enhancement initiatives in 2017.
Kulim Central’s catchment now enjoys the benefit of brands such as Starbucks Coffee, Texas Chicken, Subway, The Chicken Rice Shop, Mee Tarik Warisan Asli and Bread History. Traffic is up 81.8% and rental reversions positive at 16.4%.
On other properties, he said Subang Parade is still going through the asset enhancement exercise and extensive tenant remixing.
It is taking slightly longer given the current economy and uncertainties in the Klang Valley. Therefore, the decision is not to rush the project but to allocate sufficient time to refine the formula for the shopping centre.
Nevertheless, Subang Parade is still delivering stable results despite the temporary dip in footfall.
On Segamat Central, Hisham said a market study is being carried out to understand its demographics and customers. The team is in the midst of preparing and planning for Segamat Central’s turnaround.
Recently, it introduced a new anchor tenant, TF Value Mart, and the intelligence collected from the monthly turnover and footfall has been very encouraging, affirming new targets for the shopping centre.
“Overall, rental reversions throughout the portfolio reached a positive 5.4%, mainly through the strong double-digit performance growth in our malls in Malacca, Muar, Kulim and Sungai Petani,” he noted.
“Four of our malls which have been refurbished have recorded strong rental growth. The other two are being planned for refurbishment or asset enhancement. Five of our malls are outside of the Klang Valley. Overall, the portfolio is recording growth and that is the benefit of having a well-diversified portfolio within Hektar REIT.”
The REIT currently owns two million sq ft of retail space in four states with assets valued at RM1.2 billion as at 31 December 2018. The REIT’s cornerstone investor is Frasers Centrepoint Trust, part of Frasers Property Ltd of Singapore.
Hektar REIT is managed by Hektar Asset Management Sdn Bhd and the property manager is Hektar Property Services Sdn Bhd. Its portfolio of commercial properties includes Subang Parade in Subang Jaya, Selangor; Mahkota Parade in Malacca; Wetex Parade and Classic Hotel in Muar, Johor; Central Square in Sungai Petani, Kedah; Kulim Central in Kulim, Kedah; and Segamat Central in Segamat, Johor.