KUALA LUMPUR (Jan 20): Hong Leong Investment Bank Bhd (HLIB) has downgraded IGB Commercial Real Estate Investment Trust (REIT) to ‘sell’ from ‘hold’ previously, after the REIT’s latest earnings for the fourth quarter ended Dec 31, 2022 (4QFY2022) was impacted by lower rental income and continued rising property expenses.

“IGBCR’s (IGB Commercial REIT) 4QFY2022 core net profit of RM13.3 million (-0.3% quarter-on-quarter) brought FY2022’s (financial year ended Dec 31, 2022) sum to RM63.1 million. The performance came in below our expectations at 90%,” said the research house in a note on Friday (Jan 20).

The sister company of IGB REIT saw its net property income for 4QFY2022 fall 14.2% to RM27.27 million from RM31.76 million last year, despite revenue increasing 6.88% to RM49.44 million from RM46.26 million. For FY2022, its net property income grew to RM113.62 million from RM36.6 million last year, although revenue surged 256.84% to RM190.43 million from RM53.37 million.

The REIT has not been spared the challenges posed by the ongoing oversupply in the office market, HLIB said. Although demand for office space has recovered as the economy gets back into full swing, the research firm believes office supply will continue to exceed demand in 2023 as several new office buildings are completed in the Klang Valley.

HLIB, however, maintained the stock’s target price at 46 sen.

“Despite IGBCR missing our FY2022 forecasts, taking [the] cue from their uptrending portfolio occupancy rate (77.5% vs 71.3% in 2QFY2022) as well as the strong renewal rates (standing above 80%) for its expiring NLA (net lettable area) in 2022, we believe that the REIT bottom line should improve in tandem with the increased contributions from its new tenants as well as normalisation in property opex,” it added.

"We downgrade IGBCR to 'sell' as its share price has risen 10% since late-November," HLIB said.

IGB Commercial REIT was traded flat at 58 sen at the time of writing on Friday, with a market capitalisation of RM1.35 billion.