Mid Valley Megamall continues to drive IGB REIT in years ahead
KUCHING: Mid Valley Megamall will likely remain as IGB Real Estate Investment Trust’s (IGB REIT) main asset and growth driver over the years to come.
As the REIT’s flagship mall, RHB Research Institute Sdn Bhd ( RHB Research) expects Mid Valley Megamall to be able to register at least a strong singledigit rental reversion in FY16, leveraging on its position as one of the largest and most established shopping destinations outside of the city centre.
“Similar to Mid Valley, The Gardens Mall has enjoyed strong revenue and earnings growth over the last few years.
"We believe IGB REIT’s strategy to position The Gardens Mall as the premier luxury mall outside of city centre has been successful, with the mall now becoming a key destination for luxury retail outside of the Golden Triangle area.”
This was on the back of the firm announcing its results for the second quarter of 2016 (2Q16) whereby the group garnered net realised distributable income of RM75.5 million which was in line with consensus expectations.
IGB REIT also recorded net
Similar to Mid Valley, The Gardens Mall has enjoyed strong revenue and earnings growth over the last few years. RHB Research
income of RM66 million in the period, which translated into a lower net property income (NPI) margin of 69.5 per cent.
ResearcherswithMIDFAmanah Investment Bank Bhd ( MIDF Research) said for the first half of financial year 2016 (1HFY16), IGB REIT’s core net profit of RM138.8 million was two per cent higher on-year.
The marginally-better performance in 1HFY16 could be attributed to additional 40k square feet of net lettable area in Mid Valley Megamall post reconfiguration of layout.
“Meanwhile, we believe the positive earnings growth was also driven by positive rental reversion which was underpinned by high demand for retail space in Mid Valley Megamall,” MIDF Research highlighted in another report.
“Looking ahead, we believe that the rental reversion in Mid Valley Megamall and The Gardens Mall will remain positive going forward, underpinned by high occupancy rates of these two malls.”
For the outlook ahead, Kenanga Investment Bank Bhd (Kenanga Research) observed that FY16 will see portions of the two malls’ net lettable area (NLA) coming up for expiry.
“About 29 per cent and 45 per cent of Mid Valley Megamall and The Gardens Mall’s NLAs sre up for expiry, respectively, whereas FY17 will have 35 and 40 per cent of the malls’ NLAs up for expiry, respectively,” it forewarned.
“We have anticipated rental reversions of 15 per cent for both assets for FY16- 17E, which is similar to FY14 reversion rates. We opine that the group is able to achieve higher base rental reversions as their mall rental rates have a higher component of turnover rent.
“We believe IGB REIT is unlikely to make any acquisitions in the near-term, despite their low gearing level of 0.24 times, as we see no visible injectable assets from its parent while there appears to be no news flow on third party asset acquisitions.”