Dear Valued Unitholders,

The year 2024 has been transformative and was the most eventful yet for Hektar REIT, marked by significant achievements and strategic advancements that have strengthened our position among listed M-REITs. We kicked off the year with a new mandate from Unitholders to venture into non-retail assets, a monumental milestone that substantially redefines the future direction of Hektar REIT towards aligning and meeting our goal of defensible growth and long-term sustainability.

We launched our first-ever RM500 million Medium Term Note Programme with the first issuance tranche guaranteed by the Credit Guarantee & Investment Facility, a trust fund by the Asian Development Bank with AAA rating. The maiden tranche issuance which was fully subscribed at highly attractive coupon rate significantly elevates Hektar REIT’s profile in the international debt market.

These strategic initiatives are testaments to our commitment to continuously protect and enhance Hektar REIT’s value, and deliver consistently attractive returns to our esteemed unitholders.

The year 2024 undoubtedly has its own set of unique challenges, and notwithstanding that, our asset portfolio’s performance exhibited sustained improvement. This positive trajectory can be attributed to our unwavering commitment to optimizing operations, diversification of asset classes and executing asset enhancement initiatives to existing assets.

In adherence to our strategic objectives, we steadfastly maintain our focus on delivering sustainable returns to our Unitholders while actively and judiciously pursuing growth opportunities. This commitment reflects our dedication to sound financial stewardship and the long-term prosperity of Hektar REIT.

Market Review

Insights from Bank Negara Malaysia and the 2025 National Budget

In 2024, Malaysia’s economic landscape was shaped by strategic fiscal reforms and targeted initiatives aimed at strengthening the nation’s financial health and stimulating key sectors, including property and retail. Bank Negara Malaysia (BNM) maintained the Overnight Policy Rate (OPR) at 3% to support economic growth, signaling a stable monetary environment conducive to investment and consumer spending.

This policy stance was complemented by the government’s 2025 National Budget, which introduced measures to revamp subsidies and implement new taxes to narrow the fiscal deficit. Prime Minister YAB Dato’ Seri Anwar Ibrahim announced plans to restructure gasoline, education, and healthcare subsidies, transitioning to a more targeted approach to ensure that assistance reaches those most in need.

Additionally, the budget proposed the introduction of taxes on high-value goods and sugar-sweetened beverages, alongside an expansion of the sales and services tax, aiming to bolster government revenue and reduce the fiscal deficit to 3.8% of GDP in 2025, down from 4.3% in the previous year. These fiscal reforms are anticipated to have a multifaceted impact on the property and retail sectors. The restructuring of subsidies, particularly in gasoline, may influence consumer spending patterns, potentially affecting retail sales.

However, the government’s commitment to infrastructure development, as evidenced by significant allocations for projects like the Pan Borneo Highway and Penang LRT, is expected to enhance connectivity and accessibility, thereby increasing the attractiveness of surrounding areas for property development and retail expansion. Furthermore, the establishment of the Johor-Singapore to stimulate economic activity, potentially leading to increased demand for both residential and commercial properties in the region. To take advantage of these key developments, Hektar REIT continues to be on the lookout for prime assets that can be injected into the REIT for lucrative returns.

The retail sector stands to benefit from increased consumer spending driven by higher disposable incomes resulting from the budget’s measures, such as higher minimum wages and increased cash handouts for lower-income groups. These initiatives are expected to enhance purchasing power, thereby supporting retail sales. Moreover, the government’s focus on tourism, with expanded funding aimed at attracting more inbound tourists, is likely to boost footfall in shopping malls and increase hotel occupancies, further invigorating the retail landscape.

In summary, the confluence of BNM’s accommodative monetary policy and the government’s strategic fiscal reforms in the 2025 National Budget is poised to create a supportive environment for the property and retail sectors.

Market Review

Insights towards GDP, Inflation and OPR and Malaysia Retail’s growth

Malaysia’s economy demonstrated robust growth in 2024, with Gross Domestic Product (GDP) expanded by 5.1% in 2024, driven mainly by resilient domestic demand. The growth was driven by stronger household spending reflecting favourable labour market conditions, policy measures to support households and healthy household debt level.

Inflation remained stable throughout the year. Both headline and core inflation rates declined to 1.8% in 2024 (2023: 2.5% and 3.0% respectively), reflecting manageable price pressures in the economy.

Bank Negara Malaysia (BNM) maintained the Overnight Policy Rate at 3.00% during its policy meetings, citing positive economic growth and steady inflation. The central bank emphasized that the monetary policy stance remained supportive of the economy and aligned with current assessments of inflation and growth prospects.

Looking ahead, BNM projects that inflation will remain manageable going into 2025, amid easing global cost conditions and the absence of excessive domestic demand pressures. However, the central bank cautions that the inflation outlook remains subject to risks from global commodity prices, domestic policy adjustments, financial market and geopolitical developments.

On the retail front, Malaysia’s retail sector exhibited steady growth in 2024 with Retail Group Malaysia (RGM) projecting an overall expansion of 3.9% for the year. The third quarter saw a 3.8% year-on-year increase in retail sales, driven primarily by the mini-market, convenience store, and cooperative segments, which achieved an impressive 8.7% growth-the highest among all retail sub-sectors during this period. Looking ahead, RGM forecasts a steady growth rate of 4.0% for Malaysia’s retail sector in 2025, acknowledging ongoing challenges such as the rising cost of living and raw materials, the impact of which may be cushioned by higher minimum wage and various support initiatives by the Government.

Portfolio Review

Hektar REIT’s Strategic Focus

We recognised that the retail landscape has undergone significant transformation, especially in the post covid era with consumer preference shifting towards more experience driven and convenience focused shopping. As a response Hektar REIT is rebalancing our tenancy mix and reviewing our anchor tenant strategies to align with these evolving trends which may result in temporary drop in occupancy.

Several Asset Enhancement Initiatives (AEI) and tenancy remixing were undertaken at Hektar Malls in 2024 as Hektar REIT continues to reposition our retail malls in line with evolving retail trends and shifting consumer preferences. These activities will continue in 2025 and major AEI e.g. Subang Parade Repositioning project is expected to be fully completed in Q2 2026. Due to the timing of exiting old and onboarding new tenants that cover large spaces, as well as the limitations in implementing major AEI at live malls, the portfolio occupancy rate was marginally affected, falling to 84.0% in 2024 compared to 86.7% recorded in 2023. While this short-term impact is less than ideal, we anticipate the occupancy rate to close at above 90% in 2025 as we progressively implement and complete our AEI and tenancy remixing projects.

The REIT remains focused on strengthening its tenant mix to drive foot traffic and sustain rental income growth. To mitigate the impact of vacancy rates, Hektar REIT has embarked on proactive tenancy remixing strategies, aimed at attracting new and high-performing tenants while optimizing space utilization.

The REIT is actively extending its tenant portfolio by introducing experiential retail, sports centres, food and beverage (F&B) outlets, and lifestyle-centric brands to align with modern consumer preferences. This strategy not only enhances shopper engagement but also extends dwell time within malls. Hektar REIT is working to secure reputable anchor tenants, supermarkets, and entertainment operators to drive consistent footfall. Additionally, community centric tenants such as specialty grocers and fitness centers are being introduced to reinforce traffic flow.

To increase the experience and likelihood of occupancy, underutilised spaces are being repurposed for pop-up stores, thematic retail zones and casual lease to maximize rental yield and optimize overall mall performance. These includes outdoor areas where we host community events, thematic bazaars etc.

In terms of financial performance, Hektar REIT’s portfolio recorded a Net Property Income (NPI) of RM62.9 million, marking a 4.73% year-on-year growth attributed to improved revenue, sustainable initiatives and prudent cost optimization. The primary contributor to profitability remains Mahkota Parade, owing to its size, high overall occupancy, and status as a prominent regional mall in southern Malaysia. Following closely is Subang Parade, with its elevated occupancy level and revenue, holds substantial potential for a resurgence to its prime along with the revenue recognized from the acquisition of Kolej Yayasan Saad contributed to the improved performance of Hektar REIT.

Consequently, significant efforts are being invested in strategically repositioning Subang Parade, encompassing proactive leasing strategies, intensified marketing endeavors, new placemaking areas, new retail zones and planned facility upgrades. Anticipating a revitalized customer experience, we aim to witness enhanced performance at Subang Parade in 2025 with the completion of first phase of the renovation works in Q4 2025. Notably, Subang Parade has seen significant enhancements, with the introduction of prominent tenants such as Oriental Parade, Padi House, Mokky’s Pizza and Game On entertainment hub, Swet Fitness and Mica. In addition, Subang Parade has achieved a secured occupancy of 88% with the anticipated business commencement of incoming new tenants ranging from The Farm & Chan Rak BBQ, Collective Coffee Roasters & Paolo Paolo Gelato, Gajeto and Lil Ninja Dojo. To ensure the redevelopment project aligns with community interests and receive necessary support, we intend to collaborate with local government and organisation.

Overall, our retail assets have also demonstrated robust performance with a positive rental reversion rate of 5.7% driven by improvement in Subang Parade, Mahkota Parade, Central Square and Kulim Central.

Looking ahead, sustained positive growth in the rental reversion of the portfolio is anticipated, driven by ongoing upgrades and enhancements across our malls. In steadfast pursuit of elevating our mall experience, we remain committed to undertaking marketing-intensive initiatives aimed at driving robust visitor footfall across our portfolio. Overall visitor traffic, amounted to approximately 22.7 million visits in 2024, is a testament to the success of our intensified marketing efforts. These initiatives encompass a comprehensive range of sales and traffic-driven promotional campaigns meticulously implemented across all our malls. Recognising the shift towards digitalisation, we are integrating our technology to offer online-to-offline experiences through our platforms and new loyalty app, catering to the modern Hektar community expectations. On-site, we have also replaced and installed giant LED screens and digital directories in our malls.

Hektar REIT remains committed to sustaining long-term occupancy growth through proactive leasing efforts with focus on high-growth retail segments, emerging brands, and experiential tenants along with repositioning malls as lifestyle and community hubs through tenancy remixing, curated events, local business collaborations and social engagement initiatives.

Despite short-term occupancy fluctuations, Hektar REIT is actively executing well-defined strategies to revitalize tenancy demand, enhance asset appeal, and ensure long-term portfolio resilience and competitive edge. Supported by a stable tenancy expiry profile, strategic AEIs, and a forward-looking leasing strategy, Hektar REIT remains well-positioned to navigate evolving market conditions while delivering sustainable value to unitholders.

Portfolio Diversification

The acquisition of KYS marks a significant milestone in our diversification strategy, broadening our portfolio beyond retail assets and enhancing our resilience against market fluctuations. This strategic move not only provides stable income but also positions us to capitalize on emerging opportunities within Malaysia’s evolving real estate landscape.

As Malaysia’s pioneer retail-focused REIT, Hektar REIT takes immense pride in this legacy, with substantial Assets under Management in our retail portfolio underscoring our extensive experience and enduring presence in the retail domain. However, in alignment with our forward-thinking ethos, we acknowledge the imperative of evolution and adapting to evolving market dynamics. While our core identity remains deeply rooted in retail, our pursuit of diversification does not dilute this identity. On the contrary, we view diversification as a means of enhancing our capabilities and exploring opportunities in sectors with high growth potential, ensuring our portfolio remains dynamic, resilient, and primed for accretive yields. The management team has diverted our strategy in exploring the acquisition of non-retail assets ranging from education and industrial assets on a triple net basis which are resilient against market movements and provide safe recurring income streams with rental escalations for Hektar REIT.

Financing Review

Financing

Hektar Real Estate Investment Trust (Hektar REIT) continues to uphold a strong financial position, underpinned by a well-structured debt maturity profile that enhances our long-term stability. We have taken proactive and initiatives to rebalance our debt to equity ratio. As of 31 December 2024, the majority of Hektar REIT’s debt obligations (RM598.3 million) are structured to mature from 2027 onwards, ensuring ample flexibility in managing refinancing risks while optimizing capital efficiency.

This strategic debt distribution minimizes short-term refinancing pressures and aligns with the REIT’s long-term growth objectives. By extending its debt tenure, Hektar REIT benefits from predictive financial planning, reduced exposure to interest rate volatility, and improved liquidity management. The staggered debt maturity schedule also provides the REIT with greater flexibility to capitalize on favorable market conditions for future refinancing.

Furthermore, the REIT’s proactive approach in securing long-term financing options, such as the Medium-Term Notes (MTN) programme, reinforces our commitment to sustainable financial management. This structure not only stabilizes cash flow requirements but also supports Hektar REIT’s ongoing AEI and potential acquisitions.

Hektar REIT’s gearing ratio improved to 41.72% at end 2024 from 42.76% at end 2023, well within the 50% gearing limit set by the Securities Commission.

Distribution

We remain committed to maintaining a distribution policy of at least 90% of our distributable income and had announced on 23 January 2025, a final income distribution of 1.25 sen per unit for the fourth quarter ended 31 December 2024, taking our total distribution for financial year 2024 to 3.15 sen per unit. Based on the closing price of 55.5 sen on 31 December 2024, the DPU represents a yield of approximately 5.7%. At the end of 2024, Hektar REIT had over 7,000 unitholders - a testament to the retail investors’ confidence in Hektar REIT’s strong fundamentals and future growth prospect.

Corporate Proposal

In the financial year 2024, REIT undertook several notable corporate exercises:
On 15 January 2024, during an Extraordinary General Meeting (EGM), unitholders approved a private placement of up to 25% of Hektar REIT’s total issued units to third-party investors. Subsequently, 125,397,584 new units were issued, raising gross proceeds of RM73.36 million. These new units were listed on the Main Market of Bursa Malaysia Securities on March 5 and March 15, 2024, respectively. This exercise increased Hektar REIT’s fund size from 581,415,073 units to 706,812,657 units as of June 30, 2024.

In February 2024, Hektar REIT launched its inaugural Medium-Term Notes (MTN) Programme, was guaranteed by the Credit Guarantee and Investment Facility (CGIF). The initial issuance under this ten-year, RM500 million MTN Programme amounted to RM215 million with a five-year tenure, the proceeds are intended to support refinancing and capital expenditure initiatives, optimize the capital structure, and enhance competitiveness.

For the second quarter ended June 30, 2024, Hektar REIT declared an interim income distribution of 1.9 sen per unit, totaling RM13.43 million. The Board determined that the IDRP would apply to this entire distribution, allowing unitholders to reinvest their dividends into new units.

These strategic initiatives were aimed at strengthening Hektar REIT’s financial position, optimizing its capital structure, and providing unitholders with opportunities to enhance their investments.

Sustainability

For the retail sector, increased electricity costs pose challenges, particularly for shopping malls and large-scale retail operations that rely heavily on cooling systems and lighting. These costs may affect operational margins, leading businesses to explore energy-efficient technologies and alternative energy sources, such as solar power to be implemented by Q4 2025 at five (5) Hektar REIT’s shopping centres, to mitigate the impact. In contrast, smaller retail outlets that qualify for subsidized rates can expect minimal disruption, allowing them to maintain competitive pricing.

In 2024, Hektar REIT implemented the Environment & Social Management System framework aimed at minimizing adverse environmental and community impacts while maximizing benefits. This system emphasizes risk mitigation and includes measures such as appointing an Environment & Social Management System officer, developing a sustainability training program, establishing an Enterprise Risk Management Framework (ERMF), and enforcing environmental, social, health, and safety (ESHS) screening for new acquisitions.

Hektar REIT focused on energy efficiency by replacing equipment with eco-friendly alternatives and implementing energy-saving processes. Initiatives included regular servicing of Air Handling Units (AHUs) and Fan Coil Units (FCUs), monitoring Indoor Air Quality (IAQ), and enhancing building envelope designs to reduce heat absorption. Additionally, all six malls within the REIT’s portfolio were equipped with new Electric Vehicle (EV) charging bays, totaling 13 bays, to support the adoption of electric vehicles and promote environmental sustainability.

In the property sector, the increased electricity tariffs have raised operational costs for developers and property managers, particularly those managing energy-intensive facilities such as office towers and shopping malls. However, the heightened focus on sustainability is accelerating the adoption of green building standards and renewable energy solutions, aligning with the broader global trend of decarbonization. Developers incorporating energy-efficient designs and renewable energy solutions into new projects are expected to see increased demand from environmentally conscious tenants and investors.

Overall, while electricity tariff adjustments introduce cost pressures, they also drive innovation and sustainability, fostering a more resilient and environmentally friendly property and retail landscape. Combined with fiscal measures in the 2025 National Budget, these changes underscore the government’s commitment to balancing economic growth with energy security and sustainability.

Awards

In 2024, Hektar REIT achieved significant recognition for its outstanding performance and commitment to sustainability. Notably, the REIT was honored with the prestigious ASEAN Energy Efficient Building Award for Subang Parade, acknowledging its dedication to energy efficiency and environmental stewardship.

Additionally, Hektar REIT secured the Outstanding ESG Performance and Dividend Return award at The Edge Malaysia ESG Awards 2024 in October 2024, reflecting its excellence in environmental, social, and governance practices.

Furthermore, the company was recognized for delivering exceptional shareholder value, receiving the Highest Returns to Shareholders Over Three Years award in the REIT sector at The Edge Malaysia Centurion Club Awards 2024 in July 2024. The awards serve as a commendation of Malaysian companies committed to advancing their business operations in alignment with Environmental, Social, and Governance (ESG) principles. These accolades underscore Hektar REIT’s unwavering commitment to sustainability, strong financial performance, and its role as a leader in the real estate investment trust industry.

Hektar REIT’s dedication to community engagement garnered notable recognition at the Sustainability & CSR Malaysia Awards 2024, specifically in the Company Of The Year - Best in Sustainability Reporting & Community Support category. Throughout the years, Hektar REIT has actively forged numerous partnerships and collaborations with both local and international organizations. These initiatives have consistently provided vital support to NGOs and charity programs aimed at uplifting underprivileged and marginalized communities. In tandem with this commitment, our efforts have extended to advancing and empowering women, fostering improved financial independence for the betterment of families.

The significance of these awards is profound, representing a historical milestone and propelling us further in our sustainability mission. Looking ahead, we maintain a deep commitment to not only upholding but exceeding the high standards that have earned us these accolades. Hektar REIT remains steadfast in its commitment to integrating ESG principles across all facets of our business, from financial management to operations and future planning. This dedication stands as a cornerstone of our mission, aiming to deliver robust and enduring value to our stakeholders, positioning us for a prosperous and sustainable future.

Moving Forward

Malaysia’s economic momentum gains traction with GDP growth of 5.1% in 2024, subsequently enhanced by projected GDP growth between 4.5% to 5.5% in 2025; the retail industry landscape is poised for continued moderation. Despite this, the Manager maintains a cautiously optimistic stance, committed to fortifying our portfolio against potential unforeseen challenges in the market and industry movements expected in 2025.

Looking ahead, we are optimistic about the long-term growth potential of both the retail and non-retail sectors in Malaysia. We have set an ambitious target to double our portfolio size to RM3 billion by 2027, focusing on underserved retail assets with value creation potential, as well as resilient assets in the education and industrial sectors.

Our commitment to delivering sustainable and attractive returns remains steadfast. We will continue to explore opportunities that align with our growth objectives, ensuring that we provide enduring value to our unitholders in an increasingly competitive market environment.

Our paramount objective remains unwavering - to deliver substantial returns to our esteemed Unitholders. A key strategy in achieving this goal involves ensuring that the assets within our portfolio consistently yield robust, steady, and reliable returns with asset enhancement initiatives and tenancy remixing on existing assets while focusing on acquisition of yield-accretive non-retail assets.

In our capacity as the asset manager, we are resolute in our commitment to continually evaluate, reposition, and maximize the potential of our existing assets. Simultaneously, we actively seek new assets with accretive-yield potential to seamlessly integrate into our portfolio.

In the short-to-medium term, our strategic outlook envisions retail assets maintaining a substantial presence, with other asset classes gradually expanding to achieve a more balanced and well-diversified composition. Over the next five years, we envisage a scenario where at least 20% of our portfolio, measured by asset value, will comprise non-retail assets. However, the realization of this projection is contingent upon the collective performance of the assets within our portfolio.

When contemplating a new asset type, our Management rigorously assesses our capability to effectively oversee its unique characteristics. The focus is not only on maximizing returns but also on mitigating potential operational risks that may arise post-acquisition. This diligent approach is integral to maintaining a well-balanced and resilient investment strategy, safeguarding our income streams and ensuring the sustained prosperity of Hektar REIT.