KUALA LUMPUR (April 20): UOA Real Estate Investment Trust (REIT) will remain focused on the office property market as it sees growing potential in the segment, according to Kong Sze Choon, chief executive officer of its manager UOA Asset Management Sdn Bhd.

“I think I always believe in doing what we are doing best. We are aware that some of our fellow REITs are diversifying into different asset class.

“But for us, we still feel that the office market still has potential. This is judging from our own occupancy,” he told The Edge after the group's annual general meeting on Thursday (April 20).

Kong said the occupancy rate has increased for some of its office buildings this year, especially in the decentralised area, such as two of its offices in UOA Damansara Heights, Menara UOA Bangsar and UOA Corporate Tower in Bangsar South Kerinchi.

“If we look at it, the decentralised buildings are doing better. Partly because the majority of people actually prefer to be outside of the city centre due to certain reasons like better traffic, affordable foods and [being] near to their homes,” he said.

Last year, UOA REIT saw a decline in occupancy rates compared to 2021, for five out of six properties in its portfolio.

UOA Centre Parcels recorded 75.2% occupancy in 2022 from 75.8% in 2021, UOA ll Parcels at 70.4% (from 72.1%), Wisma UOA Damansara ll at 76.6% (from 88%), Parcel B Menara UOA Bangsar at 93.2% (from 93.5%) and UOA Corporate Tower at 93% (from 93.2%).

Meanwhile, only UOA Damansara Parcels posted a higher occupancy rate in 2022 compared to 2021, with 73.2% from 70.7%.

“In the financial year 2022, the departure of multiple tenants upon the expiry of tenancy saw an overall decline in the occupancy rates of the properties in the portfolio. 

“The most notable drop in the occupancy rate was in Wisma UOA Damansara II (by 11.4%), mainly due to several sizeable tenants who terminated their tenancy upon expiry,” he said.

However, the tenancy expiry is within expectation as all rental of properties in the portfolio are typically executed via tenancy agreements that range from one to three years, he explained, adding that the management is actively monitoring all tenancy expiries to optimise renewal.

Meanwhile, he believes that office rentals will continue to grow as more office workers have returned to work in their offices although some companies have continued to adopt a hybrid system.

“Most of the companies that I have spoken to — some still insist on 100% [working in the offices] and some actually allow one day out of five days for flexible [working arrangements].

“So if we look at it, one day versus five days, it would not be a huge material change in terms of office (occupancy),” he said.

He shared that he also did not see any tenants wanting to give up office spaces so far.

When asked on whether it will be injecting more assets into the REIT this year, Kong said that UOA REIT has not set any target for 2023 as yet.

“The REIT is always looking out for good, yield-accretive assets to be injected. We do not have a target injection amount,” he said.

Commenting on UOA REIT's outlook, Kong said the manager is cautiously optimistic due to the reopening of the economy, while remaining vigilant about market conditions such as rising inflationary pressure, interest rate and electricity hike as well as global recession.

“I think this year will be pretty similar to last year — interest rate seems to peak this year — but if we continue to have a stable government, I think I'm a bit cautiously optimistic.

“We are hoping for better results (financial), although it is something that we can’t promise, but we will definitely put more effort into improving and hoping to get a better result for this year,” he added.

UOA REIT invests in office buildings across Klang Valley. According to its annual report 2022, the management will continue to actively market the vacant space in the properties and identify potential enhancement initiatives.

For the full financial year ended Dec 31, 2022 (FY2022), UOA REIT posted a net profit of RM13.81 million from a net loss of RM5.21 million in FY2021, while revenue grew 0.46% year-on-year to RM28.29 million from RM28.16 million.

At noon break, UOA REIT units were up one sen or 0.88% to RM1.15, giving it a market capitalisation of RM776.94 million.