MQREIT’s 1Q19 results within expectations
KUALA LUMPUR: MRCB-Quill Real Estate Investment Trust’s (MQREIT) first quarter of 2019 (1Q19) results are generally within consensus and analysts’ expectations.
In a report, AllianceDBS Research Sdn Bhd (AllianceDBS Research) explained that MQREIT’s 1QFY19 core earnings came in at RM19.4 million (down 7.6 per cent y-o-y; down one per cent q-o-q).
“1QFY19 numbers are in line with our and consensus expectations. The earnings decline in the quarter was mainly due to lower revenue generated from Platinum Sentral, Wisma Technip, QB5 as well as loss of revenue from the disposal of QB8 – DHL XPJ which took place on April 12, 2018,” it added.
It also noted that MQREIT’s property operating expenses inched down to RM9.3 million (down 4.3 per cent y-o-y) as it tightened control on costs and reduced expenses from the disposal of QB8 while net property income (NPI) for the quarter came in at RM32.0 million (down 6.5 per cent y-o-y).
Portfolio occupancy fell to 89 per cent in 1QFY19 compared with 93 per cent in 4QFY18.
“We understand there was lower occupancy in QB5 – IBM, as well as Platinum Sentral and Menara Shell, as tenants opted to downsize operations,” it added.
Looking ahead, AllianceDBS Research noted that about 18 per cent of MQREIT’s total net lettable assets (NLA) is due for renewal in FY19, of which circa 0.1 per cent has been renewed and three per cent not renewed while the expiring leases in FY20 form 18 per cent of total NLA and 19 per cent in FY20.
“We understand rental reversions were flattish as it focused on tenant retention to cope with a challenging operating environment. Going forward, we expect some challenges in negotiating positive rental reversions due to the oversupply of office space in the market,” it added.
On the other hand, Kenanga Investment Bank Bhd’s research team (Kenanga Research) viewed the minimal renewed leases is comforting given the current market conditions.
“FY19 to FY20E will see minimal leases up for expiry, 19 to 18 per cent of NLA which are comforting given the tough office market conditions due to the oversupply of office spaces in KL and the Klang Valley, and risk of tenant attrition.