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Hektar REIT: Target Price at RM0.86 as Strong Growth Prospects Emerge

Juliette0331jooley
Publish date: Sat, 07 Dec 2024, 10:43 PM
Juliette0331jooley
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Snapshot of Subang Parade’s exterior view.

Hektar Real Estate Investment Trust (Hektar REIT) has emerged as a compelling investment opportunity, underpinned by strong growth prospects and strategic asset acquisitions. Analysts from AmInvestment Bank have reaffirmed a BUY call on Hektar REIT, with an unchanged target price (TP) of RM0.86 per unit, derived using a discounted dividend model (DDM) with a weighted average cost of capital (WACC) assumption of 7.4%.

At the current unit price of RM0.53, the REIT is trading at a steep 47% discount to its FY25F net asset value (NAV) of RM1.00 per unit.
The positive outlook is further bolstered by Dato’ Ong Choo Meng, a prominent shareholder, actively acquiring shares of the REIT. His confidence in Hektar’s potential aligns with the company’s improving fundamentals and distribution yield.

Hektar REIT is poised for a significant uptick in distributable income for FY25F, supported by the inclusion of rent contributions from Kolej Yayasan Saad, acquired in July 2024, and new tenants secured across its shopping malls.

The acquisition of Kolej Yayasan Saad, operating under a 30-year quadruple net lease with an annual rent escalation of 2.5%, positions Hektar for stable, long-term income growth.

While 9MFY24 distributable income of RM19.3 million reflected a 16% year-on-year (YoY) decline due to higher finance costs and acquisition fees, these are viewed as transitional.

The 3QFY24 results were impacted by normalized rental revenue from Kolej Yayasan Saad compared to the one-off lump sum rent recognized in 2QFY24. However, the average occupancy rate of Hektar’s malls is set to improve from 85.6% in 3QFY24 to an expected 92% by FY24 year-end, with new tenants secured for Subang Parade, Mahkota Parade, Central Square, and Segamat Central.
Hektar has demonstrated its ability to manage tenancy renewals effectively, with 73.3% of FY24F lease expiries renewed, achieving a 7.2% positive rental reversion in 3QFY24. Negotiations with anchor tenants are in the final stages, further solidifying Hektar’s tenant base and rental income stability.

Looking ahead, the distribution yield is projected to increase to 8.9% in FY25F, up from 6.5% in FY24F, driven by improved mall occupancy rates and steady rental income from the newly acquired asset.

This yield represents an attractive spread of 5.1% above the current 10-year Malaysian Government Securities (MGS) yield of 3.8%, reinforcing its appeal to income-focused investors.

Disclaimer
This article is for informational purposes only and does not constitute investment advice. Investors are advised to conduct their own research or consult with a licensed financial advisor before making any investment decisions.
HEKTAR (5121)
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HEKTAR BLACK SDN BHD (a substantial shareholder) disposed 204,000 shares on 14-Jan-2025.

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