Analysis: UOA REIT likely to be appealing to yield-seeking investors

KUCHING: UOA Real Estate Investment Trust (REIT) is expected to be appealing to yield-seeking investors with its higher yield spread against 10year Malaysian Government Securities (MGS), analysts say.

AmInvestment Bank Bhd (AmInvestment Bank) recapped that the recent aggressive policy rate hikes in the US has caused US treasury yields to rise and this in turn has spilled over and resulted in an increase in 10-year MGS yield.

“However, we anticipate that the uptrend in 10-year UST yield to be tapering off with the expectation that the Federal Reserve may ease off aggressive rate hikes after the end of 2022 as a result of weaker economic data,” the research firm said.

“Hence, we expect UOA REIT to be appealing to yieldseeking investors with its higher yield spread against 10-year MGS.”

Overall, AmInvestment Bank liked UOA REIT for its longterm prospects bolstered by its strategically located properties which are well-connected in neighbourhoods via bridges, major highways and public transportation.

The research firm also highlighted on UOA REIT’s diverse tenant mix, which could mitigate potential rental collection risk during economic downturns, excellent track record of distributing at least 94 per cent of net income to unitholders with a strong distribution yield of more than seven per cent from financial year 2022 (FY22F) to FY24F and large pipeline of potential asset injections from its sponsor - UOA Development.

“UOA REIT currently trades at a compelling FY23F price earnings (PE) of 12-fold versus four-year average of 17-fold.

“Meanwhile, FY23F distribution yield of eight per cent is attractive versus 10-year MGS yield of four per cent.”