UOAREIT (5110.KLSE) announced the acquisition of UOA Corporate Tower at a price of RM700mil. The acquisition is expected to be completed in 4Q2020.

UOA Corporate Tower details:

  • Market value RM718mil
  • located in Bangsar South KL
  • 38-storey office building with a penthouse level
  • exclude of car park downstair
  • occupancy rate 93.09%
  • Gross annual Rental as per 31 December 2019 RM44.4mil
  • Annual NPI RM35.9mil

In addition to acquiring properties, UOAREIT also proposed to issue private placement to raise RM280mil as part of the funds for the acquisition of properties. The remaining RM420mil will be funded with loans.

Of course, private placement needs to be approved by EGM.

UOAREIT gave a very detailed explanation. Assuming that a private placement is issued at RM1.21, then 229,800,000 units need to be issued to raise RM280mil (equivalent to 54.3% of the existing total unit of 422,871,776). The remaining acquisition cost RM420mil raised thru debt and it is calculated at 2.75% interest rate.

Assuming that the Proposals were completed on 1 January 2019 (being the beginning of the FYE 31 December 2019), the proforma effects of the Proposals on the DPU of UOA REIT for the FYE 31 December 2019 is 9.23cent(RM) per unit (originally 9.11cent(RM) per unit), so the property acquisition contributes positively to DPU. However, due to the substantial increase in the number of units, NAV per unit will decline from RM1.67 to RM1.53

In my opinion, the quality of this acquired property is good, Revenue yield 6.34%, NPI Yield 5.12%, compared with UOAREIT previous recorded data in 3 different timing.

  • 31 Dec 2019 revenue yield 7.59%,NPI yield 5.59%
  • 31 Mar 2020 revenue yield 7.64%,NPI yield 5.6%
  • 30 Jun 2020 revenue yield 6.18%,NPI yield 4.15%

Although it is not as good as 4Q2019 & 1Q2020, it is higher than 2Q2020. It must be emphasized that the UOA Corporate Tower occupancy rate has been rising in the past 3 years. In 2017-65.7%, in 2018-87.5%, in 2019-92.79%, and currently 93.09% It shows that UOA Corporate Tower is favoured by tenants and there is a high chance of increasing rent or occupancy rate in the future.

However, UOAREIT did not disclose the WALE of UOA Corporate Tower so I got no idea how is the lease structure like. 

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