IGB REIT ends FY17 on a positive note
KUALA LUMPUR: IGB Real Estate Investment Trust’s (REIT) financial year 2017 (FY17) earnings met expectations, as the group ended the year on a ‘positive note’.
As per its filing on Bursa Malaysia, IGB REIT’s realised net profit for FY17 amounted to RM303.4 million, up from RM277.8 million in FY16.
IGB REIT FY17 core net income was within the research arm of MIDF Amanah Investment Bank Bhd’s (MIDF Research) expectations, making up 104 per cent and 103 per cent of its and consensus forecasts, respectively.
Meanwhile, the group’s realised net income was slightly above the research arm of Kenanga Investment Bank Bhd’s (Kenanga Research) expectation (106 per cent) but came in within consensus (103 per cent).
“Top-line came in within ours at 98 per cent, but we believe the slight deviation in our FY17E core net profit (CNP) was due to lower borrowing cost, especially in the third quarter of 2017 (3Q17) on a write-back of step-up interest from the fixed rate term loan,” Kenanga Research said.
As for FY17 gross distribution per unit (GDPU ), which amounted to 9.76 sen, this was also above the research arm’s FY17E target (106 per cent) of 9.23 sen, implying 5.8 per cent yield.
Looking ahead, Kenanga Research expected minimal capital expenditure (capex) of RM15 to RM25 million on minor refurbishments and upkeep of both malls.
The research arm noted that FY18 will see 37 per cent and 18 per cent of Mid Valley Megamall (MV) and The Gardens Mall’s (TGM) net lettable areas (NLAs) up for expiry, while FY19 will see 23 per cent and 44 per cent of MV and TGM’s NLAs up for expiry.
“We believe the group should be able to achieve higher base rental reversions vs. peers as their mall rental rates have a higher component of turnover rent.”
Kenanga Research did not expect any acquisitions in the near-term.
Southkey Mall in Johor is slated for completion in the second half of 2018 (2H18), but the research arm expected the acquisition to only post one reversion cycle, likely by FY21.
All in, Kenanga Research maintained its ‘outperform’ call at current levels, as IGB REIT is commanding attractive gross yield of six per cent versus other predominantly retailbased Malaysia REITs’ average gross yields of 5.7 per cent, on the back of consistently strong earnings.
Going forward, the research arm was comfortable with its call, as the REIT is backed by prime asset positioning and asset stability coupled with sustained strong occupancy (more than 99 per cent) on double-digit to high single-digit reversions, which provide a safety haven for investors.
MIDF Research also maintained its ‘buy’ call on IGB REIT due to the group’s stable earnings outlook that will be driven by positive rental reversion.
“Meanwhile, dividend yield is also attractive at 5.2 per cent,” it said.