MQ REIT’s 4Q NPI falls 4.5% as expenses, finance costs rise

KUALA LUMPUR (Jan 25): MRCB-QUILL REIT (MQ REIT)'s net property income (NPI) slid 4.5% to RM30.48 million in the fourth quarter ended Dec 31, 2016 (4QFY2016) from RM31.91 million a year ago, as property operating expenses climbed due to higher repair and maintenance costs, and increased finance costs due to more borrowings during the quarter.

Its income for distribution was down 18.8% to RM13.3 million from RM16.38 million a year ago, though revenue gained 3.3% to RM38.93 million from RM37.69 million, mainly due to additional revenue from Menara Shell, and higher rental income due to rent increments at QB2, QB3 and Wisma Technip.

For the full year (FY2016), the real estate investment trust’s net property income rose 12.3% to RM107.16 million, from RM95.39 million in FY2015, its bourse filing today showed.

Total income for distribution grew 9.5% to RM59.16 million from RM54.02 million in FY2015, as revenue for FY2016 grew 13.6% to RM136.65 million from RM120.29 million. However, distribution per unit (DPU) was at 8.38 sen compared to 8.47 sen in FY2015.

In a statement today, MRCB Quill Management Sdn Bhd (MQM), the manager of the REIT, said FY2016’s DPU of 8.38 sen, which comprises an interim distribution of 4.23 sen and a special distribution of 4.15 sen, is similar to the normalised FY2015's DPU of 8.38 sen (less the distribution of a one-off gain on divestment of properties of 0.09 sen per unit.) Both distributions were paid to unitholders on Sept 8 last year and Jan 13 respectively.

The trustee of MQREIT and the board of the manager do not recommend any further distribution for FY2016, it added.

“The FY2016 DPU of 8.38 sen translates to a distribution yield of 6.98% based on the closing price of RM1.20 per unit as at Dec 30, 2016,” it said.

MQM chief executive officer Yong Su-Lin said: “The manager’s active leasing and asset management strategy throughout the year has ensured successful tenant renewals of 87% for the leases due in 2016. On the back of this as well as new tenancies entered during the year, MQ REIT’s average occupancy rate for the year stood at 98% in terms of net lettable area (NLA). In respect of 2017, MQ REIT has approximately 14% of its leases based on NLA that are due for renewal, with the bulk of the leases due after the second half of 2017.”

Yong said scheduled enhancement works will be initiated for a few properties for this financial year, namely Quill Building 3-BMW, Quill Building 5 – IBM and Platinum Sentral.

“In respect of MQ REIT’s capital management, the manager has commenced negotiations with financial institutions for the refinancing of MQ REIT’s RM190 million CP/MTN programme and is on track to complete the refinancing by early March 2016,

"As at Dec 31, 2016, 68% of MQREIT’s total borrowings are on fixed interest rate. As part of our capital management strategy to maintain majority of fixed rate borrowings, we will continue to monitor the interest rate environment with the aim of locking in fixed interest rates at an appropriate time via interest rate swaps. This will help to mitigate MQREIT’s exposure to future interest rate risk and provide income stability to the Trust,” she added.

On prospect, MQ REIT said the office market is expected to remain challenging with the slowdown of the global and domestic economies, and low crude oil prices.

“While we expect take-up rates in Klang Valley will be dampened, we are confident our tenant retention strategies will ensure that the performance of MQ REIT's portfolio remains stable in 2017,” it said.

At 3.40pm, MQ REIT was trading two sen or 1.5% lower at RM1.32, with 3.03 million units traded, for a market capitalisation of RM1.42 billion. — theedgemarkets.com