16 things you need to know about MRCB-Quill REIT before you invest
MRCB-Quill REIT (MQREIT) derives its income from a portfolio of 11 properties. Most of these properties are office buildings located in Kuala Lumpur and Cyberjaya. As at 31 December 2016, MRCB-Quill REIT’s overall portfolio is worth RM2.22 billion.
You may have heard of the saying: “Rome wasn’t built in a single day.” And this is true for all successful companies as well. Personally, I’ve looked through all of MQREIT’s annual reports since its IPO. From this, I’ve discovered the journey MQREIT has taken to reach where it is today. Here, I’ll provide a detailed account of the growth story behind MRCB-Quill REIT from 2007 to 2016:
- MRCB-Quill REIT was originally listed as Quill Capita Trust on 8 January 2007. It started off with a portfolio of four properties located at Cyberjaya. They include Quill Building 1 – DHL 1, Quill Building 2 – HSBC, Quill Building 3 – BMW, and Quill Building 4 – DHL 2. Collectively, they were worth RM276.0 million as at December 31, 2006.
- The trust then bought six properties over the next two years. In 2007, Quill Capita Trust acquired Wisma Technip and part of Plaza Mont Kiara. In 2008, Quill Capita Trust acquired four more properties: Quill Building 5 – IBM, Quill Building 8 – DHL, Quill Building 10 – HSBC, and Tesco Penang. As at 31 December 2008, Quill Capita Trust had grown its portfolio to 10 properties worth RM783.7 million.
- Quill Capita Trust grew its realised income by 52.7% from RM19.27 million in 2007 to RM29.42 million in 2008. Likewise, distribution per unit (DPU) increased from 6.46 sen in 2007 to 7.51 sen in 2008. (On a side note, Quill Capita Trust/MRCB-Quill REIT distributes income to its unitholders on a semi-annual basis. The first period is from January 1st to June 30th. It is usually paid by end of August or early September. The second period is from July 1st to December 31st. It is usually paid by end of February or early March. The frequency and time of income distribution has been maintained over the last 10 years since its IPO in 2007.)
- From 2009 onwards to 2014, Quill Capita Trust maintained its portfolio at 10 properties. It did not acquire or dispose of a single property during this six-year period. Consequently, revenues were maintained between RM65 million to RM70 million per year. Realised earnings were maintained between RM30 million to RM35 million per year. From 2010, DPU remained stable at 8 sen to 8.50 sen per year.
- In March 2015, Quill Capita Trust acquired Platinum Sentral for RM740 million. Platinum Sentral is a commercial development consisting of five blocks of commercial buildings. It is occupied by tenants such as Small and Medium Enterprise Corporation Malaysia, SBM Malaysia Sdn Bhd, and Suruhanjaya Pengangkutan Awam Darat (Land Public Transportation Commission). The purchase was satisfied with a cash payment of RM476 million and the issuance of 206.25 million units of Quill Capita Trust at RM1.28 a unit to Malaysian Resources Corporation Bhd (MRCB).
- MRCB replaced CapitaLand Commercial Trust as the largest shareholder of Quill Capita Trust. As a result, Quill Capita Trust was renamed as MRCB-Quill REIT. CapitaLand Commercial Trust remains the second largest unitholder of MQREIT as it holds 117 million shares presently. CapitaLand Commercial Trust has been a unitholder since the IPO in 2007.
- In September 2015, MQREIT divested Quill Building 10 – HSBC for RM27.3 million. This building was first acquired in 2008 for RM22.7 million in March 2008. MQREIT distributed a one-off gain on divestment of properties of 0.09 sen in 2015. As a result, MQREIT’s DPU that year was higher at 8.47 sen compared to the DPU of 8.38 sen reported from 2012 to 2014.
- As at December 31, 2015, MQREIT’s portfolio had grown to RM1.57 billion — up 87.4% from RM837.7 million in 2014. This is despite maintaining its portfolio at 10 properties. It is obvious as the value of Platinum Sentral was substantially higher than the value of the divested Quill Building 10 – HSBC.
- The acquisition of Platinum Sentral substantially increased MQREIT’s revenues and realised income. Revenue jumped 87.6% from RM70.25 million in 2014 to RM131.79 million in 2016. Realised income grew 73.2% from RM34.16 million in 2014 to RM59.16 million in 2016. However, DPU remained stagnant at 8.38 sen in 2016 as a result of a substantial increment in the number of units issued to finance the acquisition of Platinum Sentral.
- On 22 December 2016, MQREIT completed the acquisition of Menara Shell for RM640 million. It is a 33-storey office tower together with a 5-storey podium and a 4-storey basement car park. It is occupied by reputable tenants such as Shell People Services Asia Sdn Bhd, AmGeneral Insurance Bhd and Tradewinds Corporation Bhd. Once again, this acquisition was satisfied by a combination of loans and a private placement.
- As at 31 December 2016, MQREIT’s portfolio was valued at RM2.22 billion — up 41.5% from RM1.57 billion in 2015. MQREIT finally has a portfolio of 11 properties and, moving forward, Menara Shell will contribute to MQREIT’s full financial year starting in 2017.
- From its IPO in 2007 to 2016, MQREIT’s revenue has increased from RM31.38 million to RM131.79 million, achieving a compound annual growth rate (CAGR) of 17.29%. Realised earnings have grown from RM19.27 million to RM59.16 million (CAGR 13.27%) and portfolio value has grown from RM549.0 million to RM2.22 billion (CAGR 16.81%).
So far, I’ve covered the past of MRCB-Quill REIT. Now, let’s move forward with what lies ahead. This involves assessing MQREIT’s balance sheet strength and its ability to derive income presently and in the near future.
- Besides Malaysian Resources Corp Bhd, MRCB-Quill REIT has another reputable sponsor, Quill Group of Companies. The founders of Quill Group of Companies, Dato’ Michael Ong and Dato’ Dr Low Moi Ing, have been serving on the board of MQREIT as non-executive directors since June 2006 — before Quill Capita Trust was listed. Collectively, Quill Group of Companies owns a 10.95% stake in MQREIT (through Quill Land Sdn Bhd, Quill Estates Sdn Bhd, and Quill Properties Sdn Bhd.) and is the third largest shareholder.
- As at 31 December 2016, MRCB-Quill REIT has a gearing ratio of 37%. This is below the 50% allowed by regulations and gives MQREIT significant headroom for new acquisitions. The average loan term to maturity is 2.69 years and the average cost of debt is 4.4% per annum. 68% of its borrowings are at fixed interest rates. In March 2017, MRCB-Quill REIT completed the refinancing of RM190 million in medium-term notes and commercial papers. The next refinancing is due only in September 2018 which is a term loan of RM117 million.
- As at 31 December 2016, the overall occupancy rate of MRCB-Quill REIT’s portfolio stood at a healthy 98%. Most of its properties are fully occupied with long-term lease agreements. Quill Building 3 –BMW, Quill Building 5 – IBM, and Quill Building 8 – DHL XPJ are enjoying 91% – 92% occupancy rates. Part of Plaza Mont Kiara is 84% occupied, making it the only property that presently has an occupancy rate below 90%.
- As at 31 December 2016, 54% of its lease agreements will expire in 2019 and beyond. MRCB-Quill REIT has several lease agreements that would expire in the next decade which they have to progressively renew. The tenants include DHL Information Services (Asia-Pacific) Sdn Bhd, BMW Asia Technology Centre Sdn Bhd, BMW Malaysia Sdn Bhd, Tesco Stores (Malaysia) Sdn Bhd, Small and Medium Enterprise Corporation Malaysia, and Shell People Services Asia Sdn Bhd.