'UOA REIT’s dividend to be consistent this year'

KUALA LUMPUR: The manager of UOA Real Estate Investment Trust (REIT), UOA Asset Management Sdn Bhd (UOAAM), expects its dividend from the property trust to be consistent this year, despite concerns of higher cost of funds as well as the spike in utility tariffs.

For the financial year ended Dec 31, 2013, UOA REIT distributed 10.67 sen per unit, which translated into a historical yield of 7.57% based on its closing price of RM1.41 yesterday.

“We expect it to be quite consistent this year, as we don’t expect any surprises,” UOAAM executive director James Tee said after UOA REIT’s annual general meeting yesterday.

He acknowledged that the increase in the cost of funding would affect returns for UOA REIT.

“For every 10-basis point increase in interest rates, it will affect us at about 0.07 [percentage points] in terms of the distribution yield with the assumption that we don’t do anything to hedge against the interest rate.

“We have been considering several proposals to hedge the risks of interest hike,” Tee said, adding that those approaches are not viable at this stage from the cost point of view.

With total assets worth RM1.07 billion, UOA REIT has six properties under its belt. They are UOA Central Parcels, UOA II Parcels, UOA Damansara Parcels, UOA Pantai, UOA Damansara II and Parcel B of Menara UOA Bangsar.

According to Tee, the properties enjoy an average occupancy rate of 90%. “Hence, it gives us a bit more room to increase our rental rates,” he said.

“It’s a balance that we need to achieve between occupancy and rental rates because we do not want to increase the rental rate, hence affecting our occupancy rate,” said UOAAM chief executive officer Kong Sze Choon.

On the potential acquisition of assets, Tee said, “The bulk of the commercial activities are in the Klang Valley. The prospects still remain here. The yield in other states is too low to actually look at now.”

Tee said the REIT has the financial muscle to stomach acquisitions of new property assets, adding that its current gearing ratio is at 35% and it could go up to 50%, which is the maximum gearing permitted.

While there has been news of REITs being privatised, he sees more REITs coming into the market.

According to Tee, more property developers are incorporating commercial components, such as shopping mall, office and hotel into their integrated developments. By listing these components as a REIT, developers can realise the capital value and yet retain a sizeable ownership of these assets for recurring income.

The UOA building in Bukit Damansara, Kuala Lumpur. With total assets worth RM1.07 billion, UOA REIT has six properties under its belt, which are UOA Central Parcels, UOA II Parcels, UOA Damansara Parcels, UOA Pantai, UOA Damansara II and Parcel B of Menara UOA Bangsar.

However, more REITs coming into picture signify stiffer competition for UOA REIT.

For Kong, the competition is always there. “We always try to surpass their [the tenants] expectations… It’s a continuous effort to upgrade the facilities.”


This article first appeared in The Edge Financial Daily, on April 24, 2014.