Despite how challenging the past three years have been for businesses, UOA Real Estate Investment Trust (REIT) — a commercial REIT that invests in office buildings — managed to outperform its peers and won the Highest Growth in Profit After Tax (PAT) Over Three Years under the REIT sector at The Edge Malaysia Centurion Club Corporate Awards 2022.

In FY2018, UOA REIT’s net profit or realised income after tax amounted to RM35 million, which climbed 12.9% to RM39.5 million in FY2019. While net profit dipped 7.1% to RM36.7 million in FY2020, the slight drop was more than made up for by the 68.4% jump in earnings to RM61.8 million in FY2021, with full-year gross rental contributions from its newly acquired UOA Corporate Tower.

The gains it made over the three-year period translate into an adjusted PAT compound annual growth rate (CAGR) of 20.9%.

According to the REIT’s 20201 annual report, its portfolio comprises six assets located in Kuala Lumpur: UOA Corporate Tower (93.2% occupancy rate based on secured tenancies as at Dec 31, 2021); Parcel B-Menara UOA Bangsar (93.5%); Wisma UOA Damansara II (83.8%); UOA Damansara Parcels (70.7%); UOA II Parcels (72%); and UOA Centre Parcels (75.8%). These properties were valued at RM1.72 billion as at end-December 2021.

Meanwhile, the REIT’s unit price has held steady over the last few years. From RM1.10 (adjusted) on March 29, 2019, the units dipped to 97 sen on March 31, 2020, then climbed to RM1.02 on March 31, 2021, and further to RM1.13 on March 31, 2022. 

At the time of writing on Sept 20, the REIT’s price was little changed at RM1.12, giving it a market capitalisation of RM756.67 million.

For the six months ended June 30, 2022 (1HFY2022), the REIT made a net profit of RM30.8 million, little changed from the RM30.86 million it made in 1HFY2021, according to its unaudited results filed with Bursa Malaysia. This came despite a slight drop in gross rental to RM57.59 million, from RM58.47 million, as it managed to trim its expenditure with lower impairment losses of financial assets.

In a report, Hong Leong Investment Bank Research said the marginal decline in the REIT’s revenue was due to the decline in occupancy rates for most of its properties, except for Wisma UOA Damansara I, with the average portfolio occupancy rate for UOA REIT’s six properties dipping to 79%, from 82% in FY2021. 

On prospects, the REIT said the occupancy and rental rates of its properties continue to be affected by the country’s economic growth. 

“While market sentiment is improving after the opening-up of economies, which has reinvigorated the entire market, the lingering Covid-19 effects and inflationary pressures remain and affected tenants require time to recover,” the REIT said in its latest results bourse filing.

As economic conditions improve further, the REIT said its manager was hopeful about the market outlook. “Meanwhile, the manager will continue to explore new opportunities for future acquisitions that meet the objectives of UOA REIT,” it added.

HLIB Research believes the uptick in economic activities and the return-to-office trend — which heralds gradual recovery in demand for office space — augurs well for UOA REIT. It expects rental reversion rate to remain low or flattish in the near term, however, owing to the oversupply of office space. “Overall, we expect 2H2022 to remain stable on the back of longer tenancy in office REITs relative to other mall-based REITs,” it wrote in a July report.

AmInvestment Research, which initiated coverage on the REIT in mid-June with a “buy” call and a target price of RM1.42, says it likes UOA REIT for its long-term prospects, which are bolstered by its strategically located properties that are well connected with the surrounding neighbourhoods via bridges, major highways and public transportation. 

It also likes the REIT for its diverse tenant mix, which it said could help mitigate potential rental collection risks during economic downturns; its excellent track record of distributing at least 94% of its net income to unitholders; and the large pipeline of potential assets from its sponsor, UOA Development.