MQREIT’s income in 1H17 higher from better property performance
KUCHING: MRCB- Quill Real Estate Investmetn Trust’s ( MQREIT) first half of 2017 (1H17) realised net income (RNI) was well within analysts’ expectations, as was the REIT’s gross distribution per unit (GDPU).
As per MQREIT’s filing on Bursa Malaysia, the group’s RNI of RM45.21 million was higher by 47.6 per cent mainly due to higher net property income, net of higher finance costs, manager’s fee and trustee’s fee.
MQREIT’s 1H17 RNI came in well within the research arm of Kenanga Investment Bank Bhd’s ( Kenanga Research) and consensus expectations at 49 per cent and 50 per cent, respectively.
The group’s 1H17 GDPU of 4.23 sen per unit was also within Kenanga Research’s expectations at 50 per cent of its financial year 2017 estimate (FY17E) GDPU of 8.4 sen (6.4 per cent gross yield).
Kenanga Research highlighted that FY17-18E leases up for expiry are minimal at 14 to 26 per cent of net lettable assets ( NLA) which are preferable in current times where the office market is facing an oversupply situation, given the risk of tenant attrition.
As such, the research arm expected low single- digit reversions.
“Additionally, we expect minimal capex in FY17-18 of RM1012 million for maintenance,” it said.
On the acquisition of Menara Shell which was completed in December 2016 and is expected to accrete fully in FY17, the research arm has accounted for this in its earnings model.
Overall, Kenanga Research maintained its FY17-18E earnings of RM92- 95.5 million.
The research arm’s FY17-18E GDPU of 8.4 sen on average, suggested gross yields of 6.4 per cent.
As such, Kenanga Research maintained ‘outperform’ and target price of RM1.41 per share based on FY18E GDPS of 8.40 sen.
Post rolling forward its valuation to FY18E (from FY17E), the research arm made no changes to its target price as it expected flattish DPU year on year (y- o-y).
“To recap, we expect a slightly lower dividend pay- out of 96 per cent in FY18, versus 98 per cent in FY17, which is closer to historical pay- out ratios of 94- 96 per cent,” it said.
Despite its conservative valuations, Kenanga Research was comfortable with its ‘outperform’ call as MQREIT is commanding attractive gross yields of 6.5 per cent versus MREIT peers (more than RM1 billion) under the research arm’s coverage average of 5.8 per cent.