UOA REIT is a Malaysian based REIT that operates predominantly in the commercial REIT sector. They were listed in the Bursa Malaysia exchange in December 2005 and as at 31 December 2020, they owned a total of 6 commercial assets. In our last UOA REIT post, we have discussed their 2019 performance and with their recent release of the 2020 annual report, we will dive into UOA REIT FY20 performance to see how it has performed in this post.
1) Acquisition of UOA Corporate Tower bringing their total properties up to 6
One of the key events that occur in FY20 is the acquisition of UOA Corporate Tower on 30 December 2020. This a stratified 38 storey office building funded through a mixture of private placement and debt financing. As at 31 December 2020, they enjoys an occupancy rate of 94% with major tenants such Honeywell International, UOA Group of Companies and Swift Support Services Malaysia.
Upon the completion of this acquisition, this increase UOA REIT overall portfolio from 5 properties to 6 with a valuation of MYR 1.7 billion.
2) Overall decline in occupancy rate
|UOA Centre Parcels||84.9%||81.4%||78.3%|
|UOA II Parcels||85.1%||81.9%||78.1%|
|UOA Damansara Parcels||93.4%||95.7%||85.0%|
|Wisma UOA Damansara II||90.8%||99.3%||87.7%|
|Parcel B – Menara UOA Bangsar||98.1%||99.3%||92.7%|
|UOA corporate Tower||–||–||94.0%|
The overall occupancy rate of all 5 of UOA REIT properties has declined in FY20. Wisma UOA Damansara II, Parcel B- Menara UOA Bangsar, and UOA Damansara Parcels which has performed well in the past has declined in FY20. Likewise, UOA centre Parcels and UOA II Parcels which has performed poorly in the past continue to further decline.
This is due to the overall market sentiment from the uncertainty of COVID-19 pandemic. With various measures in place, employees are encouraged to work from home. This would one way or another adversely affect REIT in the commercial sector.
3) Dropped in net property income in FY20
|MYR in 000s||FY18||FY19||FY20|
|Net Rental Income||57,257||57,978||51,899|
Looking at its overall financial performance, its net property income has declined from MYR 57.9 mil in FY19 to MYR 51.9 mil in FY20. The drop is attributable to a number of factors:
- A decrease in an overall occupancy rate of all its existing properties.
- Rental rebates given to eligible tenants on a case to case basis as support to the tenants.
With the recent acquisition of UOA Corporate Tower in December 2020, this will be favourable to UOA REIT in 2021 when the full year contributions kicks in.
4) Overall decline in distribution per unit
|Distribution per unit (DPU)||9.13||9.11||8.44|
Distribution per unit has been on a year on year declining trend from FY18 to FY20. The dropped in FY20 is fairly in line with the overall decline in operational and financial performance. Based on the 31 December 2020 traded price of MYR 1.13 and the latest DPU, this would give investor a yield of 7.5%.
5) Increased in gearing in FY20
As at 31 December 2020, UOA REIT has a total borrowings of MYR 704 million which translates to a gearing level of 39.9%. This is an increase from 26.3% in FY19 due to the additional financing of its newly acquired property. Nevertheless, the gearing level is still within the permissible limit given them ample debt headroom for further asset acquisition and asset enhancement initiatives.
Of the total debt, 60% of its debt are fixed-rate in nature with the remaining 40% subject to interest rate risk. This can be both good and bad. The floating rate debt would allow UOA REIT to benefit from an overall declining interest rate environment.
Based on our overall analysis, UOA REIT has recorded a declining operational and financial performance in FY20. All its existing properties has a drop in occupancy rate. Though this comes to no surprise given the uncertainty of the COVID-19 pandemic, it will be interesting to see if the management will be able to further thrive post COVID recovery. Nevertheless, the recent acquisition of UOA Corporate Tower will definitely be favourable to FY21 when the full year rental income kicks in.
What are your thoughts on UOA REIT FY20 Performance? If you are just getting started, feel free to read more of our REIT Guide and REIT Analysis. You can also read more about what REITs are if you are new to REITs