MQREIT will continue to register resilient earnings in 4Q

KUALA LUMPUR: MRCBQuill Real Estate Investment Trust (MQREIT) will continue to register resilient earnings in fourth quarter of 2020 (4Q20), analysts opine, supported by stable occupancy across its assets.

According to the research arm of Hong Leong Investment Bank Bhd (HLIB Research) in its company update, management shared the recently improved 3Q20 profit performance of RM21.5 million, which brought first nine months of 2020 (9M20) core earnings to RM60.3 million, were partly buoyed by new tenancies of few properties.

HLIB Research highlighted that such properties are Menara Shell, at which Google has taken up circa 30,000 (square feet) of space, Platinum Sentral (co working space operator has increased its space of about 23,000 sq ft) and Plaza Mont Kiara.

“Apart from new tenancies, the company also achieved a positive rental reversion year to date (YTD) that contributed to the better performance during the year,” the research arm said.

“This comes from step-up in rental reversion from their tenant, Shell in Menara Shell, Tesco buildings as well as anchor tenants SME Corp in Platinum Sentral.

“For financial year 2021 (FY21), management is expecting a marginal increase in reversion coming from the 21 per cent of total net lettable area (NLA) that are due for renewal in FY21.”

HLIB Research gathered that as at 3Q20, lease negotiations for approximately 241,000 sq ft were concluded with 216,000 sq ft renewed while 25,000 sq ft not renewed.

The research arm noted that this translates to a total renewal rate to 90 per cent as at 3Q20.

“About 130,000 sq ft of leases is due in 4Q20 predominantly from SBM Malaysia in Platinum Sentral (circa 67,000 sq ft).

“For Menara Shell, circa 25,000 sq ft of NLA are due for renewal, of which 18,000 sq ft is coming from Saipem Asia. “The rest are from Wisma Technip (circa 16,000 sq ft) as well as a tenant in QB3 (circa 14,000 sqft) which is due for renewal.”

It added that active negotiations for renewal of the remaining leases are currently in progress and management assured that majority of this will be renewed due to their tenants’ nature of business, that is, big corporations and multinational corporations (MNCs).

On occupancy, HLIB Research noted that it remains strong at 90.5 per cent, as of 3Q20, a slight uptick from 90.4 per cent in 2Q20.

The research arm further noted that out of nine properties (excluding recently proposed disposal of QB5), four properties have 100 per cent occupancy.

“The rest of properties, for instances, Menara Shell, QB3 BMW, Wisma TechnipFMC, Plaza Mont Kiara and Platinum Sentral have occupancy of approximately 99 per cent, 91 per cent, 90 per cent, 89 per cent and 84 per cent respectively.

“Although work from home (WFH) practices have been implemented throughout some periods of the year, MQREIT has not seen their tenants downsizing their space.

“Besides, management observed that some of their MNCs tenants were undergoing renovation in view of physical distancing practices, to prepare their employees when they come back to office.

“After all, management believes that certain work discussions are more efficient to be done at office, hence ensuring a resilient demand in office space.”

As for updates, HLIB Research recalled that notably, no rental rebates were given to retail tenants in Plaza Mont Kiara during 3Q20.

“Management has not laid out any possibility of rental rebates in 4Q20 as they observed that some of the businesses have already picked up during end-November and earlyDecember.”

It also recalled that other than that, weighted average lease expiry (WALE) has increased to 4.62 years in 3Q20 (from 4.4 years in 2Q20) attributable from renewal of tenancies by DHL in QB1 and QB4.

“We believe MQREIT will continue to register resilient earnings in 4Q supported by stable occupancy across its assets.

“We note that the current office market outlook for office REITs remains lacklustre due to unabated oversupply of office in KL city.

“However, we believe MQREIT will be able to sustain its earnings, at least in the near term, due to their tenancy with big corporations and MNCs.”