3Q15 earnings beat our forecast, but were within streets’ estimates at 80% and 74% respectively. Maintain NEUTRAL, with a DDM-derived MYR1.23 TP (4% upside). We expect the soft office market conditions to persist over the short term, but note that earnings from Platinum Sentral should contribute positively to the REIT going forward. Its dividend yield remains decent, at 6.9% for FY16.

• Above expectations. MRCB-Quill REIT (MQREIT) recorded a 3Q15 core net profit of MYR15.7m (-1.1% QoQ, +81.4% YoY). This brought 9M15 core profit to MYR37.6m, ie above our previous forecast but within streets’ estimates at 80% and 74% respectively. 3Q revenue increased 81.4% YoY on the back of increased contributions from Platinum Sentral (PS) and Plaza Mont Kiara (PMK). However, property expenses surged by 57% owing to the acquisition of PS, and higher repairs and maintenance costs for PMK. Meanwhile, portfolio occupancy remains healthy at 97% while gearing stood at 43% as at end-September. As expected, no dividend was declared in 3Q15, as the REIT only distributes its dividends semi-annually.
• Recent developments. Management said MQRETI had successfully completed the disposal of Quill Building 10 on 14 Sep after some delays. We view this positively, as we think this is likely to aid in boosting the REIT’s war chest to fund future acquisitions. The MQREIT also shared that it had successfully renewed 93% of the net leasable area (NLA) expiring between 1Q15-3Q15. We believe that the REIT also has someroom for inorganic growth, as Malaysian Resources Corp (MRCB) (MRC MK, BUY, TP: MYR1.50) has said that it was looking to inject more of its investment assets into MQREIT over the next 1-2 years.
• Forecasts. We nudged up our FY15 earnings forecasts by 16%, as we believe our previous property expenses estimates were too aggressive.Still NEUTRAL. Post earnings revision, our DDM-based TP is now MYR1.23 (from MYR1.19, 4% upside). We remain cautious on MQREIT’s short-term outlook due to the persistently soft office market coupled with the REIT’s higher post acquisition gearing. That said, maintain our NEUTRAL call.