Quill Capita Trust
(April 8, RM1.22)
Maintain hold with target price of RM1.25: After fulfilling the conditions precedent, Quill Capita Trust (QCT) is ready to recognise Platinum Sentral (PS) contributions from the second quarter ending June 30 of financial year 2015 (2QFY15) onwards. Malaysian Resources Corp Bhd (MRCB) will come in as a major unitholder with 31% stake after the placement of 260 million units, in addition to a 41% stake in the real estate investment trust (REIT) management company and three out of seven board seats. 

The PS assets take QCT’s portfolio asset value to a respectable RM1.6 billion, with about 1.7 million sq ft of net lettable area (NLA) across 10 assets. Also, portfolio occupancy will reach around 95% after taking into account PS’ fully-occupied office space and the disposal of the vacant Quill Building 10 (QB10). 

With the larger portfolio, we estimate lease expiries by NLA (for the rest of 2015) will drop from 24% of total occupied space to 17%.

We reiterate our view of a challenging office space market, and hence, expect mild rental and earnings growth in the near term. While QCT will have the right of first refusal to MRCB’s investment properties, the post-PS injection gearing is now at 45%, close to the 50% ceiling as per REIT guidelines. This means future acquisition of sizeable properties may involve the issue of new units. 

We adjusted our forecasts for the revised PS contribution period (previously full year for FY15), specifics of the share placement, as well as the QB10 disposal. This led us to revise distribution per unit (DPU) by 0%/1%/2% for FY15/16/17 forecasts. We assumed 100% payout of distributable income going forward as management guided DPU will at least match that in FY14.

Hold for decent 6.9% yield. The forward yield is attractive relative to other REITs under our coverage, especially given QCT’s larger size now. — AllianceDBS Research, April 8

This article first appeared in The Edge Financial Daily, on April 9, 2015.