Organic growth drives earnings for IGB REIT in the third quarter

KUCHING: IGB Real Estate Investment Trust’s ( IGB REIT) third quarter of 2017 (3Q17) came within expectations, driven by its organic growth, analysts observed.

MIDF Amanah Investment Bank Bhd’s research arm ( MIDF Research) yesterday noted that IGB REIT’s first nine months of the financial year 2017 ( 9MFY17) core net income of RM226.2 million is largely within analysts’ and consensus’ expectations.

“The positive earnings growth was driven mainly by organic growth and write-back of step-up interest rate,” it opined.

On a sequential basis, 3Q17 core net income climbed 22.8 per cent quarter- on- quarter (q- o- q) to RM83.1 million mainly due to normalised maintenance cost and write-back of step-up interest rate arising from the fixed rate term loan that was fully settled during the quarter, the research team said.

“Recall that total property expenses of IGB REIT were higher in 2QFY17 due to higher maintenance and property upgrade expenses. On a yearly basis, 3QFY17 earnings were resilient by growing 20.9 per cent y- o-y, bringing cumulative earnings in 9MFY17 to RM226.2 million (a nine per cent y- o-y increase),” MIDF Research added.

It also pointed out that rental reversions of Mid Valley Megamall and the Gardens Mall are at around five per cent per annum, underpinning by high occupancy rates of the two malls (close to 100 per cent occupied).

Looking ahead, MIDF Research said it anticipated the REIT’s earnings growth to be driven by organic growth of positive rental reversion, as there are no visible asset injections in the near-term.

The research team is also positive on IGB REIT’s outlook.

It opined, “We are positive on the earnings outlook for IGB REIT that likely continue to be driven by positive rental reversion, and dividend yield is attractive at 4.9 per cent.”

On that note, MIDF Research upgraded its call on the stock to ‘buy’ from ‘previously’.