Cost efficiency to support higher dividend for IGB REIT
KUCHING: IGB REIT is offering the highest dividend growth among peers in FY14 due to good cost control thanks to its cost savings measure which has enabled the achievement of a higher core EPU.
MIDF Amanah Investment Bank Bhd’s research arm (MIDF Research) noted that while its rental reversion was in line with peers average at around six per cent, IGB REIT was able to pay out higher net dividend thanks to its cost savings measure which has enabled the achievement of a higher core EPU.
In FY14, IGB REIT’s reimbursement cost declined 14.1 per cent on year to RM44.9 million while maintenance expenses were lower.
“We expect its cost efficiency to continue in FY15 and have estimated its reimbursement cost and maintenance expenses to stay flat on-year as the Group is able to leverage on its parent Company’s (IGB Corp) expertise in property development and construction.
“We gather that IGB REIT will be reconfiguring its existing layouts in Mid Valley Megamall, which has been operating since November 1999, to add another 40,000 square feet (sqft) of net lettable area (NLA) in FY15. This will increase Mid Valley Megamall’s NLA by 2.3 per cent to 1.82 million sqft.
“We understand this is related
We expect its cost efficiency to continue in FY15 and have estimated its reimbursement cost and maintenance expenses to stay flat on-year as the Group is able to leverage on its parent Company’s (IGB Corp) expertise in property development and construction.
MIDF Research
to the expansion of the third floor food court of Mid Valley Megamall. Coupled with The Gardens Mall (TGM) NLA of 0.83m which should remain unchanged, the Group’s total NLA is expected to increase by 1.5 per cent to 2.64 million sq ft,” said MIDF Research.
IGB REIT remains focused on rolling out further Asset Enhancement Initiatives. It also plans to refresh its asset by bringing in new tenants including Bath & Body Works, Under Armour, Victoria Secrets and Yeast.
Management expects consumer and business sentiment to be affected in FY15. This is due to continued volatility in oil prices, weaker domestic currency and the introduction of Goods and Services Tax (GST) in April.
Despite of these challenges, the research house expects Mid Valley Megamall to still register a marginal growth of 2.5 per cent in rental reversion. This is due to the strategic location of Mid Valley Megamall and TGM as well as its vibrant tenancy mix.
“Mid Valley Megamall’s occupancy rate continues to stay at an outstanding level of 99.9 per cent in FY14 and we expect this good trend to continue in FY15. Overall, this should keep FY15’s Blended Occupancy Rate (including TGM) to stay high at 98.9 per cent.
“Of the 33.6 per cent and 15 per cent NLA of Mid Valley Megamall and TGM respectively due for renewal this year, we understand that bulk of the tenants have agreed to renew their tenancies,” it added.
IGB REIT has in total RM1.22 billion of debts out of which RM1.2 billion are in the form of fixed rate term loan facilities with fixed interest rate of 4.4 per cent per annum.
“We opine that its high proportion of debts in fixed rates will be favourable in the event interest rate hikes as it will contain the rise in its financing cost.”