UOA Real Estate Investment Trust’s (REIT) fourth quarter financial performance ending Dec 31, 2021 (4Q21) is expected to remain resilient on the back of overall strong portfolio occupancy, according to Hong Leong Investment Bank Bhd (HLIB).

HLIB analyst Farah Diyana Kamaludin stated that the favourable view is also based on the REIT that will enjoy a full year contribution from its acquisition of UOA Corporate Tower in December 2020.

“UOA REIT will continue to concentrate on prudent capital management. While potential acquisition is not expected to occur in the near future, the preferred location would be within the Klang Valley area,” she noted in a recent note on the investment trust.

The investment bank has maintained its ‘Buy’ call on UOA REIT with an unchanged target price (TP) of RM1.26.

Farah added that the TP is based on the group’s financial year 2022 distribution per unit on targeted yield of 7.2% derived from two-year historical average yield spread between UOA REIT and 10-year Malaysian Government Securities.

“We like UOA REIT for its attractive dividend yield of 7.6% and its relatively more resilient earnings amid Covid-19 given minimal retail exposure unlike other mall-based REITs,” she said.

The analyst noted maintained UOA Reit’s earnings forecasts as results were in line with expectations.

For 3Q21, UOA REIT saw its net profit rise 76.8% to RM16.12 million from RM9.17 million a year ago, supported by higher revenue.

UOA REIT’s quarterly revenue surged 62.1% to RM30.04 million from RM18.53 million in 3Q20.

In a recent filing to Bursa Malaysia, the group noted that against the corresponding quarter last year, gross rental has increased by 62.2% whereas total expenditure increased by 62.8%.

“The increase in gross rental and total expenditure was mainly due to the acquisition of UOA Corporate Tower at the end of 2020,” it said.

Earnings per unit rose 10.6% to 2.4 sen from 2.17 sen in the same quarter last year.

No dividend was declared as it is usually payable semi-annually.

For the nine-month period (9M21), the REIT’s net profit rose 73.9% to RM47.31 million from RM27.2 million in the previous corresponding period, while revenue climbed 62.7% to RM88.72 million from RM54.52 million in 9M20.

Farah Diyana stated that the REIT’s results came in within the research house’s full year expectations at 78%.

She noted that UOA REIT’s property operating expenses increased 5.6% year-on-year (YoY) and 23.9% year-to-date (YTD) due to higher maintenance expenses.

Net property income continued the uptick of 89.1% YoY and 79.3% YTD.

Borrowing costs soared 140.7% YoY and 105.1% YTD due to additional financing facilities to fund the new acquisition.

Overall, the REIT’s core net profit showed an increase of 84.5% YoY and 76.4% YTD.

With six properties strategically located in prime locations in Kuala Lumpur, the REIT’s average portfolio occupancy increased to 86%, while gearing increased slightly to 39.8%.

Moving forward, UOA REIT stated that the market remains uncertain despite the reopening of the economy.

“The managers will continue its effort to maximise yield for unitholders by actively managing the properties in the portfolio and prudently managing the capital.

“The managers will also continue to source for opportunities to further acquire real estate that meets the objective of the UOA REIT,” the REIT added.