Tower REIT is a commercial REIT that invests in commercial real estate across Malaysia. Tower REIT’s portfolio consists of 3 prime commercial buildings being Menara HLX, Plaza Zurich, and Guoco Tower with a combined appraised value of approximately MYR 812 mil as at 30 June 2021.
In this post, we will dive deeper into its Tower REIT FY21 performance to see how it has performed.
1) Occupancy rate for existing properties continues to decline with an uplift from newly acquired Guoco Tower
| FY19 | FY20 | FY21 | |
| Menara HLX | 34% | 21% | 25% |
| Plaza Zurich | 64% | 67% | 61% |
| Guoco Tower | n.a | n.a | 95% |
One of the biggest development of Tower REIT is the acquisition of Guoco Tower in FY21. Menara Guoco is a 19-storey premium-grade office tower strategically located near Kuala Lumpur City Centre. This acquisition is a plus as it gives Tower REIT an overall uplift in operational performance with key tenants such as British American Tobacco, Dentsu Aegis Network, and GuocoLand (Malaysia) Berhad.
Looking at the operational performance of its existing properties, both Menara HLX and PLaza Zurich reported a fairly poor occupancy rate. Despite a slight improvement, the occupancy rate of Menara HLX still remains below the 30% mark. Plaza Zurich on the other hand reports a dropped in occupancy rate from 67% in FY20 to 61% in FY21.
The lower occupancy rate is due to the downsizing of offices by most companies struggling due to the prolonged Movement Control Order. Furthermore, work-from-home protocols are also fueling the trend towards smaller and more flexible office space that is away from the city centre.
2) Increased in financial performance from the newly acquired Guoco Tower
| MYR in 000s | FY19 (18M) | FY20 | FY21 |
| Revenue | 44,054 | 21,604 | 31,848 |
| Net Propety Income | 26,633 | 10,046 | 17,399 |
In terms of financial performance, the revenue has improved slightly from MYR 21.6 mil in FY20 to MYR 31.8 mil in FY21. This is mainly attributable to the acquisition of Guoco Tower. If we were to look at the performance of its existing properties, it has on the other hand been doing fairly poorly over the past few years.
3) Declining distribution per unit
| Cents | FY20 | FY21 |
| Distibution Per Unit | 2.43 | 2.21 |
Despite the improvement in financial performance, Tower REIT reports a decline in distribution per unit in FY21. Its DPU decline from 2.43 cents in FY20 to 2.21 cents in FY21. This would give investors a dividend yield of c.3.64% based on its 30 June 2021 closing price.
Read More: Why you should never buy a REIT just because they have a high dividend yield
4. Increased in gearing but within healthy level
One of the positive aspects of Tower REIT is that it has close to zero debt historically with a gearing level of only 4% in FY20. In FY21, its gearing increased from 4% in FY20 to 33% in FY21. This increase is mainly attributable to the newly acquired Guoco Tower. Having said that, its overall gearing is still below the permissible limit giving them ample debt headroom for future acquisition and asset enhancement initiatives.
Summary
Based on REIT Pulse analysis, Tower REIT being in the office sector has been badly impacted by the COVID-19 pandemic. Its 2 existing properties have continued to deteriorate with occupancy below the sector average. The positive aspect is the acquisition of Guoco Tower in FY21 which has contributed to the slight improvement in financial performance. Despite that, the overall distribution per unit of Tower REIT continues to decline.
We will let you decide if this is worth investing in.
What are your thoughts on Tower REIT FY21 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.
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