We expect the overall weighted average occupancy rate of Hektar REIT's (Hektar) malls to increase from 85.6% in 3Q24 to 88.2% in 4Q24 and 91.1% in 1Q25 driven by the entry of new tenants. Revenue uplift in 4Q24 is likely to be moderate as new tenants have just commenced business operations in Central Square (CS) and Subang Parade (SP) while the occupancy of Wonderpark in Segamat Central (SC) has been delayed to 1Q25. Nevertheless, a stronger 1Q25 is expected with the full the quarter's revenue contribution from the new tenants in CS and SP. These developments are poised to see a higher revenue and distributional income in FY25F. FY25F distribution yield remains attractive at 8.7% providing a spread of 4.9% against the present 10-year MGS yield. Our TP has been revised slightly to RM0.85/unit from RM0.86/unit to reflect delays in new anchor tenant commencing business in SC.

• Uplift in gross revenue anticipated in 1Q25 due to the recognition of rentals from 2 anchor tenants in CS. A new anchor tenant commenced operations in November 2024 in CS. Meanwhile, Wonderpark, a replacement anchor tenant occupying an expanded space of approximately 33,000 sq ft is expected to begin operations in 1Q25. Together, these two anchor tenants will occupy a combined net lettable area (NLA) of up to 45,000 sq ft of the mall. We project these tenants to boost CS's occupancy rate from 75.4% in 3Q24 to 89.9% (+14.5%) by 1Q25.
• Expect improvement in rental yield and occupancy rate for SC due to the ongoing reconfigurations of lower ground (LG) floor space, tenant remixing initiatives and a new anchor tenant entry. Hektar REIT's reconfiguration strategy involves subdividing the floor space occupied by a large anchor tenant into smaller lots. Hektar will be targeting mini anchor tenants to occupy the reconfigured space to boost rental yield with a higher rent psf. Besides, it will relocate a mini anchor tenant from LG to the upper floor to enhance space utilization. It plans to introduce more F&B and lifestyle stores at the LG floor to create a more diverse tenant mix aligning to consumer preference. A new anchor tenant, The Store occupying 22,000 sq. ft. is set to begin operations in 1Q25, eventually raising the occupancy rate of SC from 72.4% in 3Q24 to 81.4% (+9%) by 1Q25.
• Completed Phase 1 asset enhancement initiatives (AEIs) with replacement of lifts and escalators and new tenants have been secured in 4Q24 for SP. Phase 1 of the AEIs including bubble lift upgrades and modernised escalators have been completed. Phase 2 of AEIs is underway. New tenants secured recently, including anchor tenants, Game On (21,646 sq. ft.) and others like Padi House and Sushi Kazoku (18,233 sq. ft.) have raised the occupancy rate of SP from 77.5% in 3Q24 to 85.1% in 4Q24. Mini anchor tenants, The Farm and Chan Rak BBQ (6,650 sq. ft.) are expected to start operations in 1Q25, advancing the malls occupancy rate further to 86.5%. We expect the rental from these new tenants to increase Hektar's revenue in FY25F.

Source: AmInvest Research - 19 Dec 2024