Hektar REIT is a REIT listed in the Bursa Malaysia exchange with assets mainly in the retail sector. Their cornerstone investor is Frasers Centrepoint Trust, which is part of the Frasers Property Group, headquartered in Singapore. For those who are not familiar with Frasers Property Group, they managed assets of approximately SGD 38.7 billion as of 30 September 2020 ranging from residential, retail, commercial & business parks, to industrial & logistics in Southeast Asia, Australia, Europe and China.
| Location | Valuation (MYR’mil) | % | |
| Subang Parade | Selangor | 441.00 | 37% |
| Makhota Prade | Malacca | 329.00 | 27% |
| Wetex Parade | Johor | 146.00 | 12% |
| Central Square | Kedah | 92.00 | 8% |
| Kulim Central | Kedah | 130.00 | 11% |
| Segamat Central | Johor | 69.00 | 6% |
| Total | 1,207.00 | 100% |
They own 6 different malls in Kedah, Selangor, Malacca and Johor. Looking at the summary above, Subang Parade and Makhota Parade make up the biggest proportion where they cumulatively make up 64% of the total portfolio of Hektar REIT.
In this post, we will look at the performance of Hektar Reit FY20 performance to see how it has performed.
Read More: 6 Key Things You Need to Know about Hektar REIT 2019 and Q1 2020 Performance
1. Overall declined in occupancy rate in FY20
| FY18 | FY19 | FY20 | |
| Subang Parade | 88.2% | 93.9% | 83.7% |
| Makhota Prade | 96.0% | 96.4% | 92.5% |
| Wetex Parade | 98.5% | 96.2% | 94.5% |
| Central Square | 96.9% | 89.7% | 87.9% |
| Kulim Central | 93.5% | 95.0% | 93.9% |
| Segamat Central | 78.6% | 77.1% | 77.9% |
| Average | 92.1% | 92.5% | 88.4% |
Let’s start out by looking at the occupancy rate of Hektar REIT. As repeatedly mentioned, the occupancy rate is the lifeblood of any REIT. The ability for the REIT performance to grow in a constant environment is highly dependent on the occupancy rate of the REIT. If we were to look at the average occupancy rate of Hektar REIT, it has overall declined from 92.5% in FY19 to 88.4% in FY20. The decline comes as no surprise given the uncertainty of the COVID-19 pandemic. In fact, Hektar REIT is already on a declining trend as shared in our previous Hektar REIT analysis.
Almost all its properties reported a decline in occupancy with the exception of Segamat Central. Though there is a drop in occupancy in Wetex Parade, Central Square and Kulim Central, the decline is relatively small. What is worrying is the decline in the occupancy rate of Subang Parade which accounts for the biggest proportion of Hektar REIT asset from 93.9% in FY19 to 83.7% in FY20. This arose as a number of tenants opted for early termination of their tenancy due to the challenging retail environment.
Nevertheless, management has represented that their rejuvenation plans of Subang Parade is on track which will provide them with a strong foundation for recovery in 2021 once economic activities are normalised.
2. Overall Negative Rental Reversion of 28.2% in FY20
The next operational indicator we will be looking into is the rental reversion of Hektar REIT. In FY20, Hektar REIT reported a negative rental reversion of 28.2%. Almost all the properties reported a negative rental reversion with the exception of Wetex Parade and Kulim Central. Both these properties reported an overall positive rental reversion of 8.1% and 0.6% respectively.
Subang Parade, Central Square and Segamat Central on the other hand reported a negative rental reversion of 44.7%, 44.0% and 42.1% respectively.
3. Year on year decline in net property income
| FY18 | FY19 | FY20 | |
| Gross Revenue | 135,107 | 137,089 | 111,139 |
| Net Property Income | 78,717 | 75,435 | 52,971 |
In terms of its financial performance, Hektar REIT reported a year on year decline in net property income from MYR 78.7 million in FY18 to MYR 52.9 million in FY20. The decline is mainly attributable to the overall decline in occupancy rate as well as the negative rental reversion in FY20.
If we were to just look at the occupancy of Subang parade which happens to be the biggest contributor, the occupancy have declined to 83.7%. It’s rental reversion during the year on the other hand stood at negative 44%.
4. Declining distribution per unit (DPU)
| Cents | FY18 | FY19 | FY20 |
| Distribution Per Unit (DPU) | 9.01 | 7.77 | 0.9 |
Distribution per unit has been on a declining trend dropping from 9.01 cents in FY18 to 0.9 cents in FY20.
5. Gearing rose to 46.2% in FY20
As at 31 December 2020, Hektar REIT has a total borrowings of MYR 581.1 million. This translates to a gearing level of 46.2%. Though this below the permissible limit, their gearing fairly high when compared to other REITs in the Malaysia market. Just a year ago, their gearing stood at 44.1% and has since increased to 46.2% in FY20.
All their borrowings are floating rate in nature. What it means that the fluctuation in interest rate will affect them. Given the fact that interest rate has been on the decline, this might be favourable for Hektar REIT in the short term.
Summary
Based on our overall analysis, Hektar REIT being a reit predominantly in the retail sector have taken a hit. Operational and overall financial performance have declined in FY20. From a short term perspective, the distribution in FY20 might be unattractive to investors. We will let you decide if it will be a worthwhile investment going forward.
What are your thoughts on Hektar REIT FY20 Performance? If you are just getting started, feel free to read more of our REIT Guide and REIT Analysis. You can also read more about what REITs are if you are new to REITs.
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