KUCHING: Quill Capita Trust (Quill), a real estate investment trust (REIT) managed by Quill Capita Management Sdn Bhd is expected to have soft near-term earnings growth given low rental reversion capacity in lieu of the large incoming office supply poised to flood the market from 2013 to 2014.
According to HwangDBS Vickers Research Sdn Bhd (HwangDBS Research), average rents had inched up marginally quarter on quarter (q-o-q) for four consecutive quarters. As at fourth quarter 2012 (4Q12), the large supply overhang still placed pressure on Quill’s asset portfolio.
The research firm stated that this would be mitigated by 44 per cent of its assets based in Cyberjaya where supply was not expected to increase as much as in the Klang Valley.
The research house believed Quill would continue to perform despite a tenant’s market in the office segment, as it enjoyed an evenly distributed lease expiry profile as well as diversified set of tenants (leaning towards resilient sectors like oil and gas, logistics, retail and banking companies).
On another note, Quill’s 1Q13 earnings of RM8.1 million was marginally 0.5 per cent higher year on year (y-o-y) (2.4 per cent higher q-o-q ex-revaluation gains in 4Q12) on the back of higher net property income margin (NPI) and lower trust expenditure rising from lower administrative expenses.
Revenue saw a three per cent decline y-o-y due to persistent vacancy at Quill Building 10.
The research house also highlighted that Quill was in the midst of refinancing its existing RM117 million medium-term notes, which were due in September 2013, to 2018, which would imply only a RM60 million in MTN commitment in 2014. Gearing and average cost of debt remain unchanged at 36 per cent and 4.32 per cent respectively, at a 100 per cent fixed interest rate.
The stock was supported by 7.7 per cent FY13F distribution yield, and was still relatively undervalued at 10 per cent discount to net asset value in line with the general office REITs, it added.