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Results in-line; Mahkota Parade refurbishment done
* Hektar REIT’s 1QFY10 net income came in at RM10 milllion -- within expectation of our full year estimates of RM41 milllion. The group also declared an interim dividend of 2.5 sen per unit.
* Compared to the same period last year, net income grew by 10% on back of stronger (5% y-o-y) rental revenue - mostly due to full contribution from Wetex Parade in Johor.
* Porfolio occupancy remains solid at 97% due to stronger occupancy at Mahkota Parade at 97% from 94% as at 4QFY09. There was also a slight improvement at Wetex Parade with tenancy rate jumping to 91% from 90% last quarter.
* But Hektar suffered negative rental reversion of 7% for the quarter with Mahkota Parade being main contributor. This is expected given the refurbishment exercise undertaken over the period. The mall will be re-launched this month.
* Hektar’s rental income for the year is 78% secured with 22% of rental income or 75 tenants up for rental renewals by year-end. We believe rental reversion should be positive now that Mahkota Parade’s enhancement exercise has been completed.
* Elsewhere, there are no new developments regarding new acquisitions of assets with the REIT still in talks to buy one to two suburban retail malls in peninsula Malaysia.
* At current price, the REIT is trading at narrower discount of 2.8% and its current yield of about 8% remains attractive vis-à-vis 10-year Government bonds (4.2%) and fixed depositrate of 2.8%.
* We maintain our BUY rating given the attractive yield and defensive nature of Hektar’s assets under its portfolio with our fair value under review pending an analyst briefing later today, May 6. 2010.
