IGB Real Estate Investment Trust (REIT)
(July 12, RM1.66)
Maintain buy with an unchanged target price (TP) of RM1.85: IGB REIT sustained its malls’ high occupancy rates with Mid Valley Megamall and The Gardens Mall achieving committed occupancy of circa 100% respectively as at end of first half of 2018 (1H18)
This was largely attributed to the malls’ prominent location with high shopper traffic and wide catchment areas which, in turn, sustained high demand for the malls’ retail space and rental rates.
Evidently, we note that most of financial year 2018 (FY18)’s lease expiries (34% and 18% of net lettable area [NLA] for Mid Valley Megamall and The Gardens Mall respectively) have been renewed with positive rental reversions, and average blended tenant sales in 1H18 grew single-digit year-on-year (y-o-y) (comparable with FY17’s).
We understand that SouthKey MidValley Megamall in Iskandar, Johor is slated to open in 4Q18 with about 1.5 million sq ft NLA. The mall’s committed occupancy is currently at least 70%.
However, we have yet to impute the mall into our forecasts as the acquisition is likely to only take place after one tenancy cycle of three years (that is beyond FY21). If successful, it could significantly enlarge IGB REIT’s portfolio NLA by approximately 56% (FY17: 2.7 million sq ft of NLA).
We nudge up our FY18/FY19/FY20 earnings by 1%/2%/2% after tweaking our interest cost and non-operating expenses assumptions but our RM1.85 dividend discount model (DDM)-TP is unchanged due to marginal changes.
Meanwhile, we believe IGB REIT would also benefit from the improvement of consumer sentiment and spending post-GE14 (14th general election) via increased turnover sales which generally account for circa 12% to 15% of total rental income.
IGB REIT offers 2018/2019 net dividend per unit yields of 5.3%/5.5% (sector: 5.6%/5.8%). — Maybank IB Research, July 12