IGB REAL ESTATE INVESTMENT TRUST

By Affin Hwang Capital Research Hold (maintained) Target price: RM1.68

AFFIN Hwang Capital Research remains positive on IGB Real Estate Investment Trust’s (Reit) potential asset injection, the Southkey Megamall, as it is seen as a highly distribution per unit (DPU) enhancing asset.

Likening the Southkey Megamall to Mid Valley Megamall, the research house said that the former has the potential to plug-in the retail demand gap in the southern region and serve the population from Malacca, Johor and Singapore.

“We foresee the acquisition of Southkey Megamall in Iskandar Malaysia as highly DPU enhancing by an additional 20% or more, yield-accretive and may potentially add 11 sen to 15 sen in net asset value.

“We believe that the mall will replicate the success of Mid Valley Megamall and introduce a whole new modern retail concept. In our view, a well-conceptualised retail mall will have the ability to attract migration of retailers and tenants,” said the research house in a note.

The Southkey Megamall is currently under construction and is expected to officially open by the end of next year. The project is a joint-venture between IGB Corporation Bhd and Selia Pantai Sdn Bhd.

Note that, the asset acquisition by IGB Reit is expected to materialise by 2020 to 2021. The mall is expected to deliver potential gross rental revenue of RM356mil to RM405mil per year.

Affin Hwang Capital Research said that without the acquisition of the Southkey Megamall, IGB Reit’s earnings will remain business-as-usual until 2020, sustained by net property income of its two key retail mall assets.

“We reiterate our ‘hold’ rating and target price of RM1.68. We expect IGB Reit’s earnings to remain resilient on stable occupancy rates, an experienced management team and a more efficient cost management.