[RAM] RAM Ratings affirms AAA(fg)/Stable rating of Hektar REIT's RM230 mil Guaranteed Tranche(s)

RAM Ratings has affirmed the AAA(fg)/Stable rating of the RM230 mil Medium-Term Notes (MTN) (Guaranteed Tranche(s)) issued under Hektar MTN Satu Sdn Bhd’s (Hektar Satu or the Issuer) RM500 mil MTN Programme. The enhanced rating reflects an irrevocable and unconditional guarantee on the notes provided by Credit Guarantee and Investment Facility (rated AAA/Stable/P1). 

Hektar Satu is a wholly owned subsidiary of Hektar Real Estate Investment Trust (Hektar REIT or the REIT), set up solely as a funding conduit for the MTN Programme. The first retail-focused REIT to be publicly listed, Hektar REIT owns and manages six neighbourhood retail assets across Peninsular Malaysia – Subang Parade, Mahkota Parade, Wetex Parade, Central Square, Kulim Central and Segamat Sentral – as well as a 156-room hotel annexed to Wetex Parade. Hektar REIT’s RM150 mil acquisition of Kolej Yayasan Saad Melaka (KYS) – a fully residential school – last year increased its portfolio value and 9M FY Dec 2024 revenue by a respective 12.2% and 12.9% to RM1.38 bil and RM94.8 mil, diversifying the REIT’s asset and earnings base. KYS’s revenue from school fees reached RM27.9 mil in 9M 2024 while operating profit of RM14.1 mil, its highest since 2019, more than covers lease obligations to the REIT. 

Hektar REIT’s credit profile is underpinned by the geographically diverse malls in its portfolio, stable community-focused footfall and improving rental income. Due to protracted asset refurbishments and ongoing tenant repositioning at various assets, overall portfolio occupancy was slightly lower than expected at 85.6% as at end-September 2024, but should reach 89% for the full year given new tenancies which started in 4Q2024. We expect the REIT’s slightly compressed NPI margin (9M FY Dec 2024: 52.8%) due to higher costs to strengthen with better occupancy and estimated mid-single-digit rental reversion in 2024. 

As at end-September 2024, the REIT’s leverage eased to 42.1% owing to an expanded asset base (end-December 2023: 42.7%), but its debt-to-operating profit before depreciation, interest and tax ratio and fixed charge cover deteriorated slightly to a respective 11.78 times and 1.75 times (FY Dec 2023: 11.47 times and 1.87 times) in line with weaker occupancy and higher financing costs. We expect these indicators to improve with a full-year lease contribution from KYS and anticipated gradual recovery of the REIT’s rental revenue. 


Analytical contacts
Darrel Tiang
(603) 3385 2531
darrel@ram.com.my

Tan Han Nee
(603) 3385 2529
hannee@ram.com.my

Media contact
Sakinah Arifin
(603) 3385 2500
sakinah@ram.com.my