Results highlights
• Broadly in line; maintain BUY. Hektar REIT’s FY11 core net profit of RM38.9m was spot on at 99.7% of our full-year forecast. It declared a final DPU of 3.0 sen, bringing full-year DPU to 10.5 sen, slightly lower than our forecast of 10.8 sen. We maintain our BUY recommendation, earnings forecasts and DDM-based target price of RM1.50. We like Hektar’s above-industry-average yields of >8%, which are an attraction in volatile market conditions. Another catalyst could be upward rental reversions for one-quarter of its NLA in 2012.
• Healthy rental reversions. Hektar enjoyed a healthy average rental reversion of 20% for 124 new tenancies (35% of total NLA) in 2011, led by Subang Parade, which saw the renewal of 68 tenancies at rates that were 31% higher, primarily because of the new retail space for Cube and Rosette. Wetex Parade also benefited
from a 20% increase in rentals for 24 tenancies in 2011, a result of the new entertainment outlet at Quadrix. Mahkota Parade’s rental rates started stabilising, registering a positive rental reversion of 3% in 2011, a change from 9M11’s -1%. • 9.0% rise in 2011 shopper traffic. Total shopper traffic for the overall portfolio rose by 9.0% yoy to 22.1m visitors. After 3 consecutive years of negative growth, Mahkota Parade’s visitor traffic showed a strong 14.0% growth in 2011 to 8.2m visitors due to the completion of major refurbishments in May 2010. Subang Parade and Wetex Parade too reversed the negative growth trend in 2010 to register a
5.8% and 7.6% growth in shoppers in 2011, respectively.
• Further rental reversions in 2012. About a quarter of Hektar’s NLA (24% of total rental income) will be up for renewal this year. We believe there is a high chance of further upward rental revisions.
Recommendation
Maintain BUY. We maintain our BUY recommendation, earnings forecasts and DDMbased target price of RM1.50. We like Hektar’s above-industry-average yields of >8%, which are an attraction in volatile market conditions. Another catalyst could be upward rental reversions for one-quarter of its NLA in 2012.
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