Hektar REIT plans to boost asset size

“The strength of Hektar is my management being the mall owner. It is the ability of my people to smell the upside of an asset early before everyone else does, to decide which one to buy,” Hektar Asset Management Sdn Bhd chairman and chief executive officer Datuk Jaafar Abdul Hamid said in an interview with Business Times in Kuala Lumpur.

Jaafar also attributed Hektar’s strength to its ability to turn around those malls through asset enhancement.

The trust owns two assets – the 19-year-old Subang Parade in Selangor and the 12-year-old Makhota Parade in Malacca worth a combined RM523 million.

He said Hektar has a proven track record in turning around both Subang Parade and Mahkota Parade. The value of the two malls have risen to RM523 million now compared with RM370 million some three years ago when the assets were first acquired.

Still, the performance of Hektar REIT shares has not been particularly exciting since the company was listed last December, partly due to investors’ negative perception. The shares have so far been trading at an average of RM1.01, slightly lower than the RM1.05 retail investors had paid for in the initial public offering.

Jaafar brushed aside sceptics that view the disposal of the two malls into the REIT as an act of owner cashing out, to book gains of the revalued assets.

“Many people had thought that we were crazy when we bought those assets at the time. They don’t believe we could revitalise the malls and increase yield. So I have to do it via a private vehicle before putting them into the REIT,” he said.

Executive vice president of Hektar Asset Management Christopher Mears added that it is hard to determine when would be the best time to sell an asset into the trust and that every property is a different case.

“Not every mall is like Subang Parade which could stay open during refurbishment. Sometimes a REIT may not support such acquisition because the trust would require stable recurring income and couldn’t afford the downtime,” Mears explained.

He said Malaysia’s retail mall industry is segmented and still provide many opportunities for a retail specialist like the Hektar Group to pick up undervalued assets.

“Shopping malls, unlike offices, are dynamic. Tweaking the retail mix, concepts or expanding the area could bring in value. Subang Parade has seen 20 per cent increase in traffic, but there’s still further upside,” he added.

Set to replicate its own success in turning around underperforming assets, Jaafar said the group has started due diligence on three shopping centres in Malaysia. He said these are neighbourhood and regional malls, declining to be more specific on the locations.

Apart from third-party purchase, Hektar Group is developing the lands adjacent to Subang Parade and Mahkota Parade. It is also building a lifestyle mall, known as the Hilltop, in Nusajaya of Johor.

“Hilltop will be a lifestyle centre. Unlike the common box mall, it will be a community of 10 buildings with a central park in between. The idea is to get shoppers to spend more time here,” Jaafar said.