UOA REIT registered a 3Q24 core PAT of RM10.5m (+29.4% QoQ, -25.4% YoY), bringing the 9M24 core PAT to RM30.2m (-28.2% YoY). The results M Securities said they were within expectation, accounting for 77.3% and 66.3% and of consensus
estimates, respectively.
The core PAT dropped 25.4% YoY, mainly due to a significant decline in rental income from Menara UOA Bangsar as the anchor tenant exited in 3Q24. The departure of the tenant has led to a drop in the occupancy to 58% from 98% in 3Q23, and gross rental income fell 48%, from RM5.8m in 3Q23 to RM3.0m in 3Q24.
Gross rental income rose marginally by 0.6% to RM27.8m, while core PAT increased significantly by 29.4% QoQ to RM10.5m. The growth was driven primarily by higher overall rental income (excluding Menara UOA Bangsar), and 18% reduction in direct operating expenses, from RM11.1m in 2Q24 to RM9.1m in 3Q24. However, no income distribution declared for the quarter under review.
Occupancy rate across all the properties have improved QoQ, except for Menara UOA Damansara II and Menara UOA Bangsar, which saw declines of 1% and 15%, respectively.
Weighted average lease expiry as compared to 1.52 and 1.08 in FY23 and FY22, respectively. Overall tenancy expiry profile is 10.3% to 43.3% over 2024-2027. While gearing ratio rose slightly by 1.5% to 40.9% as at 3Q24 versus 39.4% in FY23. Should BNM raise the OPR, borrowing costs are expected to rise gradually.
M Securities said challenges in the office space market, including rising business costs, inflation, and new supply, are expected to create a more competitive environment. While the house foresees a gradual improvement in sentiment, rental rates are likely to remain flat. Despite a decline in the portfolio occupancy rate from 79% in 2Q24 to 77.3% in 3Q24, the house anticipates gradual tenant replacement at Menara UOA Bangsar in 2025, with smaller units leased to multiple tenants.
As the share price has declined after the downgrade, the house has upgraded to HOLD from SELL on UOAREIT, with a target price of RM0.93, reflecting a downside of 6.1%.