By FARA AISYAH / Graphic By ANIS SHAMSUL
MRCB-QUILL REIT (MQREIT) has noted lower revenue from properties like — Platinum Sentral, Quill Building 5-IBM and Wisma Technipsaw — which saw its net profit for the second quarter ended 2019 (2Q19) fall 29.9% year-on-year (YoY) to RM14.46 million from RM23.49 million in 2Q18.
In addition, the company recorded a gain on divestment of Quill Building 8-DHL (XPJ) that amounted to RM2.2 million in 2Q18.
Quarterly revenue dropped 10.3% YoY to RM39.19 million while distributable income amounted to RM17.35 million or 1.62 sen per unit for the period compared to distributable income per unit of 2.28 sen recorded a year ago in the same period.
Management indicated the outlook remains tough.
“We anticipate the operating environment for office space in the Klang Valley to remain challenging due to oversupply pressure. This is not expected to abate soon with more office buildings pending completion,” MRCB Quill Management Sdn Bhd (MQM) chairman Tan Sri Saw Choo Boon said.
“We are confident the trust will ride out the office market down cycle with our continued focus on cost management, tenant retention and optimisation of rental contribution,” he added.
Due to tighter cost controls, property operating expenses for the quarter were 3.4% lower YoY at RM9.7 million which have resulted in lower net property income by 12.4% YoY to RM29.49 million.
Manager’s fees incurred for the three-month was 5.3% lower at RM3.1 million in line with the lower net property income and total gross asset value in 2Q19.
Finance costs incurred for 2Q19 at RM9.7 million was also lower at 2.1% YoY due to reduced borrowings after the repayment of Murud Capital Sdn Bhd’s Fixed Rate Sub-ordinated Term Loan of RM19 million on March 29, 2019.
For the cumulative six months, MQREIT net profit decreased 19.42% YoY to RM35.86 million as revenue fell 8% YoY to RM80.91 million.
MQM’s CEO Yong Su Lin said the company continued with its marketing efforts to lease out MQREIT’s existing vacant spaces and in the first half of 2019 (1H19), the trust secured new leases of 123,000 sq ft for a few of its properties with demand coming from the oil & gas, IT, services and retail sectors.
She expects income contribution from the new leases to commence and stabilise by 4Q19, while there will be some downtime during the transition period between the outgoing tenants and the commencement of the new leases.
“In terms of lease renewals, we have been engaging with key strategic tenants on lease renewals well ahead of lease expiry in cognisance of the challenging office market outlook. The outcome has been positive with MQREIT achieving an 88% renewal rate for leases expiring in 2Q19 as well as advanced lease renewals of 185,000 sq ft of leases expiring end of 2019,” Yong said in an exchange filing yesterday.
She added that negotiations are progressing as scheduled for the balance of leases expiring in 2H19 which represent 20% of the total leases due for renewal in 2019. MQREIT’s average occupancy rate as at June 30, 2019 stood at 89% she added.