IGBREIT end FY23 within expectations with earnings of RM359 million
IGB Real Estate Investment Trust (IGBREIT) has ended its financial year 2023 (FY23) within market expectations with a core net profit of RM359.1 million and a final distribution per unit (DPU) of 10.47.
According to the research arms of Kenanga Investment Bank Bhd (Kenanga Research) and Midf Amanah Investment Bank Bhd (Midf Research), the results made up 99 and 100 per cent of their respectively fullyear forecasts.
The full-year DPU of 10.47 which translates to a gross yield of 6 per cent also met Kenanga Research’s full-year expectation of 10.5 sen.
In FY23, the group’s revenue had grown by 9 per cent year on year (y-o-y) due to stronger rental income as well as net property income (NPI) margins that grew by 1.7 percentage points (ppt) to 72.7 per cent.
It was also notable that the group’s Mid Valley Megamall and The Garden Malls both registered occupancy rates of 100 per cent during the final quarter of the period under review (4QFY23).
This was further underpinned by recovery in shopper footfall at both malls said Midf Research.
“The year reported revaluation gains of RM158.6 million from both malls, leading to FY23 net profit to rise by 31 per cent to RM517.6 million,” Kenanga Research added.
However, higher property operating expenses from higher utilities costs during the year partially offset earnings growth.
And after adjusting for the above-mentioned fair value gains and increased expenses, the group’s CNP of RM359.1 million and distributable income of RM385.8 million both registered growths of 7 per cent.
Looking ahead, both analysts reckon that IGBREIT’s longterm earnings outlook is stable and intact due to its strong retail portfolio and high occupancy rates.
“We see that long-term prospect for IGBREIT remains promising due to the strategic location of its retail assets which will drive rental growth in the near to long-term,” said Midf Research.
However, they acknowledge that in the coming year, there is some downside risk for retail REITs stemming from a higher inflationary environment subduing consumer spending and retailers struggling to maintain profitability margins amid rising labour and utility expenses.
However, for IGBREIT this risk is minimised as both of the group’s malls target the mid to higher income demographic which is anticipated to remain relatively unaffected by the a higher inflationary environment.
“Therefore, despite a challenging economic outlook and a high-inflation environment, including the introduction of new retail malls in Klang Valley, we are confident that IGBREIT is well-positioned to maintain a stable earnings pattern moving forward,” Kenanga Research opined.
“Additionally, the enhancement of a previous anchor tenant’s space could soon be commercially ready, driving more traffic and tenants there,” they add.
For FY24, Kenanga Research maintains their forecast of IGB registering a CNP of RM359.3 million and DPU of 10.5 sen while Midf Research maintains their forecast of a CNP of RM373 million and a DPU of 9.49 sen.
Kenanga research maintains a ‘Market Perform’ call on IGB REIT with a raised target price of RM1.68 while Midf Research maintains a ‘Buy’ call with an unchanged target [price of RM1.86.