MQREIT to have additional rental income via Menara Shell
KUCHING: MRCB- Quill REIT (MQREIT) is projected by analysts to have additional rental income for financial year 2017 (FY17) following the acquisition of Menara Shell.
According to the research arm of Hong Leong Investment Bank Bhd (HLIB Research), the acquisition of Menara Shell for the amount of RM656 million ( including exercise expenses RM16 million) is expected to be funded via proposed placements up to 406.7 million units at an issue price to be determined via book building.
“Using illustrative price of RM1.05, the equity/ debt ratio is about 65/35 with up to RM152 million (23 per cent) to be taken up by Malaysian Resources Corporation Bhd ( MRCB) and Employee Provident Fund (EPF) has expressed interest to take up to seven per cent of the enlarged share base,” HLIB Research said.
HLIB Research highlighted that with Menara Shell, a gradeA green building and MSC status with high occupancy rate of 99 per cent in prime KL Sentral hub, the asset size of MQREIT now stands at RM2.27 billion.
The research arm projected additional rental income of RM47.2 million (net yield of 6.1 per cent) for FY17.
“As we gather more info from the management and factor in the income from Menara Shell with the enlarged share base, our FY17 distribution per unit (DPU) forecast remains unchanged with
Using illustrative price of RM1.05, the equity/debt ratio is about 65/35 with up to RM152 million (23 per cent) to be taken up by Malaysian Resources Corporation Bhd (MRCB) and Employee Provident Fund (EPF) has expressed interest to take up to seven per cent of the enlarged share base HLIB Research
an expected increase in payout ratio.
“The new assets – ( Menara Shell and Platinum Sentral – have allowed management to enjoy greater operating efficiency arising from scale.
“Besides, distributable income will also be lifted with the proposed payment of management via units up to 32 million new unit generated from the new assets to be paid in unit for the next three years,” the research arm said.
HLIB Research noted that given the illustrative pricing is at a discount of 13.2 per cent from current price, the placement price could be potentially higher and it will be yield accretive to existing shareholders as the discount can only be up to 10 per cent.
The research arm was less concerned on the office spaces owned by MQREIT given the trust’s strategic location and long lease term ( WALE more than five years) shielding from the otherwise lacklustre office market.
“Its net lettable area ( NLA) expiry is well-spread with circa 10 per cent and 18 per cent to expire in FY17 and FY18; while sustainable high yield of approximately seven per cent will provide a bottom cushion,” the research arm said.
On MQREIT’s gearing ratio, HLIB Research pointed out that it would improve to around 40 per cent (industry average circa. 30 per cent) from present level of 42 per cent.
“With the asset size now stands at RM2.27 billion, there is some headroom (up to RM227 million) for debt financing,” it said.
In its forecasts, HLIB Research explained that contribution of Menara Shell and enlarged share base based on the indicative price assumption are imputed; payout ratio is raised to 99 per cent and management fee via unit from FY17 onwards are also imputed.
All in, the research arm maintaind its ‘ buy’ recommendation with an unchanged target price of RM1.34 per share.