Malaysia REIT

Hektar REIT bullish on strategies

CEO says acquiring neighbourhood malls will pay off

Hektar Real Estate Invesment Trust (REIT) is firmly confident and bullish that its strategies in acquiring neighbourhood malls that are not necessarily located in the Klang Valley will pay off for its unitholders, especially in times of economic trouble.

REIT manager Hektar Asset Management Sdn Bhd's chairman and CEO Datuk Jaafar Abdul Hamid said that despite being among smaller listed REIT entities in the industry presently, it counted its strengths as being diversified and defensive in times of economic uncertainties around the world.

"We are too small to be compared with the bigger (retail) players. But, we have our niche. Of course people will say, Hektar REIT is small, compared with others which are bigger and more stable. But you have to do your own analysis history shows that we pay quarterly dividends for the last five years," Jaafar told journalists after its EGM yesterday.

"Even though we are small, we are well diversified. The big ones (REITs), they are concentrated one big mall with big asset values. Imagine if you have any incidents (happening)," its executive director and chief financial officer Zalila Mohd Toon said.

Hektar REIT yesterday obtained the approval of its unitholders for the proposed acquisition of two shopping malls in Kedah Landmark Central Property (LCP) with a net lettable area of 280,000 sq ft in Kulim, and Central Square Property (CSP) with a net lettable area of 300,000 sq ft in Sungai Petani.

LCP opened in 2009 and its main anchor tenant is Giant Hypermarket. It has a 77% occupancy rate which is expected to rise to 99% once The Store commences its tenancy on Oct 15.

CSP was launched in December 1997 with The Store being its main anchor tenant with an occupancy rate of 99.5%.

These purchases will be partly funded by a renounceable rights issuance of up to 93 million net units in Hektar REIT, which have also been approved by its unitholders.

The manager is allocating RM19mil to refurbish the two malls which will be financed via internal funds and bank borrowings and is expected to be spent in 2013.

LCP will be bought for RM98mil and has an audited historical yields of 5.8% while CSP will be purchased at RM83mil with an audited historical yield of 6.4%.

"These are based on audited numbers that have been produced by the vendor. When we did our assessment when deciding whether or not we should acquire it is on the basis that it will be 7% at the point of entry. The minute Hektar REIT injects these two malls into its portfolio, the starting point will be 7% onwards," its senior finance manager Raziff Suhairi Shaaban said.

"Post-acquisition there may be a slight earnings per unit dilution in the short term but, in terms of dividends per unit, we assure you that the dividends that we will be paying post-acquisition will be maintained at least as per 2011. Unitholders dividends will be maintained or improved from this year onwards," Raziff said.

The acquisition signified its expansion into the northern region of Malaysia and was in accordance with its investment strategy of targeting prime neighbourhood malls as they were more resilient during times of economic downturn, capitalising on the economic growth and the vibrancy of the retail market, a statement issued by the manager stated.