Should We Be Investing In UOA REIT?
Listed in 2005, UOA Real Estate Investment Trust (KLSE: 5110) invests in a portfolio of commercial properties located at Damansara Heights, Bangsar, and Kuala Lumpur. As of 24 December 2019, its market capitalisation is RM 520.1 million. In this article, I’ll cover on UOA REIT’s latest financial results and valuation figures. Hence, here are 12 things to know about UOA REIT before you invest:
- Portfolio Composition
UOA REIT was listed with an initial portfolio that consists of three office buildings namely: UOA Centre, UOA 2 and UOA Damansara. Since then, UOA REIT had invested RM 500 million in acquiring two properties such as Wisma UOA Damansara 2 and Parcel B – Menara UOA Bangsar. Then, in 2018, UOA REIT had disposed Wisma UOA Pantai for RM 120 million.
Presently, in Q3 2019, UOA REIT has a portfolio of five properties worth RM 1.04 billion. These properties are as follows:
|Property Valuation (RM Million)||Portfolio Composition (%)|
|1||UOA Centre Parcels||85.1||8.2%|
|2||UOA 2 Parcels||294.0||28.4%|
|3||UOA Damansara Parcels||121.0||11.7%|
|4||UOA Damansara 2||236.1||22.8%|
|5||Parcel B – Menara UOA Bangsar||300.0||29.0%|
|UOA REIT’s Investment Portfolio||1,036.2||100%|
- Property 1: UOA Centre Parcels
UOA REIT has 28 strata titles in UOA Centre, a 33-storey office building located at Jalan Pinang, Kuala Lumpur. Since 2012, they had recorded a fall in occupancy rates from 96.0% to 84.9% in 2018. This had caused it to report a gradual fall in rental received from RM 7.2 million in 2012 to RM 6.2 million in 2018. Its revenue contribution remains small as it had accounted for 8.2% of UOA REIT’s total revenues in 2018 (excluding the rental received from Wisma UOA Pantai – disposed in July 2018).
- Property 2: UOA 2 Parcels
UOA REIT has 68 strata title in UOA 2, a 39-storey office building that is located at Jalan Pinang, Kuala lumpur. Likewise, occupancy rates for the parcels in the building fell from 93.3% in 2014 to 85.1% in 2018. Rental received has dipped from RM 23.5 million in 2015 to RM 21.1 million in 2018.
- Property 3: UOA Damansara
UOA REIT owns 30 strata titles in UOA Damansara, which is a 13-storey office building at Damansara Heights. It maintained an occupancy rate of 85% – 95%, thus, reporting steady growth in rental received from RM 8.2 million in 2009 to RM 9.6 million in 2018.
- Property 4: UOA Damansara 2
It is a 16-storey office building at Damansara Heights purchased for RM 211 million in January 2011. With lower occupancy rates, UOA REIT has recorded a fall in rental received from RM 17.2 million in 2013 to a low of RM 13.1 million in 2017 and 2018.
- Property 5: Parcel B – Menara UOA Bangsar
UOA REIT has acquired 14 strata titles in Tower B, Menara UOA Bangsar for RM 289 million. This building consists of 15 levels of office spaces, 3 levels of retail podium and 10 levels of car parks. Since its acquisition, it has achieved above 95% in occupancy rate and thus, contributing to its rise in rental received from RM 21.1 million in 2011 to RM 26.0 million in 2018.
- Group Financial Results
UOA REIT had recorded continuous decline in group revenues from RM 91.6 million in 2015 to RM 78.2 million in 2018. This is due to a decline in revenues from UOA Centre, UOA 2 and UOA Damansara 2 during the period. As a result, its distributable income had declined from RM 46.6 million in 2015 to RM 38.6 million in 2018. Hence, its gross distribution per unit (DPU) has dropped from 11.02 sen in 2015 to 9.13 sen in 2018.
- Balance Sheet Strength
In Q3 2019, UOA REIT has RM 286.0 million in total borrowings and RM 1.05 billion in total assets. Thus, its gearing ratio is 27.3%.
- Major Unitholders
Kong Choon Soon and Kong Pak Lim are major unitholders of UOA REIT with 76.55% indirect unitholdings in the REIT as of 31 December 2018.
- ROFR Properties:
On 15 January 2016, UOA REIT was given Rights of First Refusal (ROFR) to all or any commercial properties which are developed and owned by UOA Development Bhd for a period of 5 years until 16 January 2021.
- Recent Development: Disposal of 1 Unit at Menara UOA Bangsar
On 8 August 2019, UOA REIT has announced that it has disposed of one lower-floor unit at Parcel B – Menara UOA Bangsar for RM 1.55 million. The property was purchased for RM 1.24 million in 2011, thus, allowing UOA REIT to earn RM 0.21 million in gain from this transaction.
- P/B Ratio
As of 24 December 2019, UOA REIT is trading at RM 1.23 a unit. For Q3 2019, UOA REIT has net assets of RM 1.72 a unit. Hence, its current P/B Ratio is 0.72, the lowest in 10 years.
- Distribution Yields
UOA REIT has paid out 8.40 cents in net DPU for the past 12 months. As such, its net distribution yield works out to be 6.83% per annum, above its 10-year average of 6.45% per annum.
The question is: ‘Is this a good time to invest in UOA REIT as it offers a high 6+% in dividend yields and is now trading at its lowest P/B Ratio?’
Personally, I have learnt that the quality of a REIT should have greater emphasis over its yield and valuation figures. This is because my own purpose in investing is to earn incremental dividends over time. Therefore, from above, with dipping rents and incoming supply of new office spaces from Tun Razak Exchange (TRX) and Bandar Malaysia, it is important to find out what UOA REIT is doing to cope with this challenging situation in the immediate future before investing into it.
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