UOA REIT holds back acquisition plans

KUALA LUMPUR (April 21): UOA Real Estate Investment Trust (UOA REIT) is putting future property acquisition plans on hold this year due to the subdued market and also because the assessments and due diligence for such transactions will take time.

UOA Asset Management Sdn Bhd, which manages UOA REIT, said that although the trust’s current “permissible” trading yield allows for more acquisitions, it is unsure whether it can grow its portfolio — comprising six office properties — this year.

“We are always on the lookout for [good properties] as our trading yield is a bit more permissible now,” said UOA Asset Management chief executive officer Kong Sze Choon.

“But we are unlikely to find one this year as we need to evaluate the particular property’s potential yield and ensure a transaction satisfies the Securities Commission’s guidelines,” Kong told The Edge Financial Daily after UOA REIT’s annual general meeting yesterday.

The guidelines entail the liberalisation of the borrowing limits for a REIT, easing of leasehold property acquisitions and flexibility accorded to real estate acquisitions which are hindered by financial charges.

Where acquisition is concerned, UOA REIT stressed that it would rather focus on the current asset type it holds and has no plans at the moment to branch out towards other property types such as retail and residential.

“We have been in the office property market for a very long time and with our expertise, we can best maximise our office-type assets,” Kong said. UOA REIT’s current property yield benchmark is 5% to 5½%.

Kong also said that future acquisitions will be concentrated within the Klang Valley as the region still holds “the best capital value for properties.” With that, buying properties overseas is not part of the trust’s agenda.

Going forward, UOA REIT does not expect the industry, especially the office property market, to fully recover in terms of capital value this year. “We do not foresee any major appreciation in office property prices so soon. If anything, the price would probably hang on to the current level,” Kong said.

"There is a misalignment between supply and demand. More office buildings are coming up and if this continues, the situation will not improve," he said, adding, however, that things would be better if market sentiment and the overall global economy improved, and if more investments flowed into Malaysia.

The market slowdown had visibly impacted UOA REIT’s financial performance for the year ended Dec 31, 2016 (FY16). Net profit more than halved to RM49.63 million from RM110.32 million in FY15 due to lower occupancy rate across its range of properties. The average occupancy rate fell from over 80% in FY15 to about 75% in FY16, with the biggest drop in take-up rate seen in Wisma UOA Pantai following the vacancy left by an anchor tenant.

This article first appeared in The Edge Financial Daily, on April 21, 2017.

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