Hektar Real Estate Investment Trust (REIT) is expected to receive higher distributable income in 2025 with yield rising to 8.9% from 6.5% in the previous year, as new tenants have been secured for existing shopping malls, coupled with rent contribution from the newly-acquired Kolej Yayasan Saad, according to AmInvestment Bank Bhd (AmBank IB).

The 8.9% yield projection has taken into consideration the expected improvement in the average occupancy rate of its malls and the rental from the 30-year net lease agreement with a 2.5% escalation in rent per annum from Kolej Yayasan Saad. The acquisition of Kolej Yayasan Saad has raised the total asset under the management of Hektar REIT to RM1.38 billion from RM1.23 billion.

AmBank IB has maintained its BUY call for Hektar REIT and has kept the target price at RM0.86 unchanged. The target price of RM0.86 represents a premium of 34.5 sen over the prevailing market valuation.

As at 2:59pm Nov 27, Hektar REITs traded at RM0.515. (Stock updates from Bursa Malaysia)

Hektar REIT's year-to-date (YTD, up to September) distributatble income contracted by 16% year-on-year (YoY) to RM19.3 million due to higher finance cost, one-off acquisition fees for Kolej Yayasan Saad and professional fees related to the acquisition that was completed in July this year.

Meanwhile, third quarter distributable income decreased nearly 37.0% YoY to RM4.3 million.

Average occupancy rate of malls dipped slightly to 85.6% in the third quarter of 2024 from 87.2% recorded in the second quarter, largely due to the decrease in occupancy rate of Central Square and Segamat Central. Nevertheless, the occupancy rate is expected to improve in the fourth quarter with new tenants secured for Central Square and Segamat Central, as well as Subang Parade and Mahkota Parade. These new tenants are expected to increase the overall average occupancy rate of Hektar REIT's malls to 92% by the end of 2024.

More than 70% (73.3%) of tenancy contracts due in 2024 covering 592,757 square feet of net lettable area (NLA) have been renewed with the remaining anchor tenants under the final stage of negotiation.

Nevertheless, any slowdown in consumption spending from a slower economic growth and subsidy rationalisation could lower the malls' rental reversion rates and occupancy rates.

Hektar REIT is Malaysia's first retail-focused REIT with a portfolio seven (7) assets including six (6) shopping malls, Subang Parade, Mahkota Parade, Wetex Parade, Kulim Central, Segamat Central and Central Square, plus one (1) education asset, Kolej Yayasan Saad.