IGB REIT’s earnings driven by organic growth

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KUCHING: Earnings of IGB Real Estate Investment Trust (IGB REIT) for the first quarter of financial year 2018 (1QFY18) came in within expectations with core net income of RM82.3 million and the REIT announcing a distribution per unit (DPU) of 2.48sen for the period.

MIDF Amanah Investment Bank Bhd (MIDF Research) opined that IGB REIT’s earnings was driven by organic growth.

On a sequential basis, 1QFY18 earnings grew 6.6 per cent quarter on quarter (q-o-q) to RM82.3 million, mainly due to seasonally higher shopper traffic in first quarter. Similarly, 1QFY18 earnings were higher by 9.1 per cent y-o-y on the back of higher topline.

“The higher net income was mainly buoyed by positive rental reversions,” it said in a note recently. “Rental reversions of Mid Valley Megamall and the Gardens Mall are at around five per cent per annum due to high occupancy rates of the two malls.

“We maintain our earnings forecasts for FY18/19. Earnings prospect of IGB REIT expected to stay positive, driven by organic growth of positive rental reversion.”

Meanwhile, Kenanga Investment Bank Bhd (Kenanga Research) expected IGB REIT’s minimal capex of RM15 million to RM25 million on minor refurbishments and upkeep of both malls.

“FY18 will see 37 and 18 per cent of MidValley Megamall and The Gardens Mall’s NLAs up for expiry, while FY19 will see 23 and 44 per cent of those malls’ net lettable areas (NLAs) up for expiry, respectively.” it said.

“We do not expect any acquisitions in the near-term. Southkey Mall in Johor is slated for completion in 2H18, but we expect the acquisition to only post one reversion cycle, likely by FY21.”

IGB REIT’s management also declared a surprise quarterly distribution of 2.48 sen, which Affin Hwang Investment Bank Bhd (AffinHwang Capital) said signalled a possible change from its bi-annual distribution practise.

“We maintain our hold rating and target price of RM1.63 per share,” it said in a separate report.

“We like IGBREIT for its first-class assets, strong balance sheet and exciting asset acquisition outlook. However, the weak retail mall market and possible rate hike(s) may weigh on investor sentiment.

“Key re-rating catalyst is the opening of Southkey Megamall on August 8, 2018.”

Meanwhile, MIDF Research maintained a buy call with an unchanged target price of RM1.73, while Kenanga Research maintained its market perform call and target price of RM1.50 per share.