IGB REAL ESTATE INVESTMENT TRUST

By Hong Leong Investment Bank Buy Target price: RM1.84

HONG Leong Investment Bank (HLIB) said management was optimistic that year-onyear tenant sales growth in 2017 can be sus- tained around the high single digits despite the challenging retail operating environment.

“We understand that all net lettable area (NLA) expiring in 2017 in both Midvalley Megamall and The Garden Mall has been renewed at mid-single digit rental reversion rate.

“Going forward we opine that similar reversion rate is achievable due to the healthy tenant sales enjoyed by both Midvalley Megamall and The Garden Mall.”

HLIB said Midvalley Southkey Megamall is expected to start operating in August 2018 and the potential injection of this asset into IGB REIT will increase total NLA by 60%.

“However, injection of Midvalley Southkey Megamall will only happen at the earliest in 2021 after the one tenancy cycle (three years) to allow stabilisation in rental and occupancy rates.”

The research house said IGB REIT’s current net gearing stands at about 0.24 times (as at the first quarter of 2017), adding that this would provide ample room for acquisitions.

“However, we do not expect any acquisitions in the near term due to lack of high quality malls available at attractive price.”

HLIB said the company reiterated that IGB REIT will remain as a pure play retail REIT going forward, adding that its sponsor will not inject any other types of commercial properties (office towers, hotel etc) into the REIT.

“We deem this positive as a pure play REIT is more analyzable and tends to enjoy a valuation premium relative to peers as it offers more clarity on its prospect.”