UOA REIT’s FY21 core net profit of RM64.0m (+68.9%) were within our full year estimates. Dividend of 4.32 sen per unit was declared. FY21 revenue rose (+60.8%) mainly backed by the newly acquired UOA Corporate Tower (Dec 2020). Borrowing costs increased (+112.8%) due to funding of the new acquisition. All in, core net profit improved (+68.9%). Occupancy and gearing stood at 82% and 39.4% respectively. We maintain our forecasts, reiterate our HOLD call with unchanged TP of RM1.14, based on FY22 DPU on targeted yield 7.9%.

Within expectations. 4QFY21 core net profit of RM14.9m (-13.9% QoQ, +48.7% YoY) brought full year FY21 sum to RM64.0m (+68.9%). The results came in within our full year expectations at 103%.

Dividend. Declared dividend of 4.32 sen per unit going ex on 7 Feb 2022.

QoQ. Gross revenue fell to RM28.0m (-6.1%) due to the decline in occupancy in some older assets. Also, the rise in property expenses (+7.6%) from higher maintenance costs incurred, led to the decline in NPI (-9.8%). In turn, core net profit fell to RM14.9m (-13.9%).

YoY/FY21. Revenue rose (+54.7% YoY, +60.8% YTD) mainly due to the newly acquired UOA Corporate Tower (Dec 2020). Property operating expenses increased (+42.8% YoY, +30.6% YTD) owing to higher maintenance expenses. That said, NPI continued the uptick (+58.9% YoY, +72.7% YTD). Borrowing costs soared (+139.8% YoY, +112.8% YTD) due to additional financing facilities to fund the new acquisition. Overall, core net profit showed increment (+48.7% YoY, +68.9% YTD).

Occupancy and gearing. With 6 properties, the average portfolio occupancy decreased to 82% (FY20: 86%). Gearing reduced slightly to 39.4% (FY20: 39.9%).

Outlook. We expect 2022 to remain stable given minimal retail exposure unlike other mall based REITs. UOA REIT will continue to concentrate on prudent capital management. While potential acquisition is not expected to occur in the near future, the preferred location would be within the Klang Valley area.

Forecast. We maintain our forecasts as results were in line.

Maintain HOLD, TP: RM1.14. We maintain our HOLD call with an unchanged TP of RM1.14. To note, our TP is based on FY22 DPU on targeted yield of 7.9% derived from 2-year historical average yield spread between UOA REIT and MAG10YR.

Source: Hong Leong Investment Bank Research - 21 Jan 2022