IN its results review of IGB REIT, CGS-CIMB Research noted that the real estate investment trust recorded a flattish rental reversion for FY2020 which the research house deems as positive and somewhat resilient compared to its retail mall peers in Klang Valley.
This is probably the secret recipe for landlords and the likes to stay afloat amid the soft property market environment which has seen adverse spill-over effect onto the rental market/income.
What IGB REIT has achieved is praiseworthy given that its FY2020’s average occupancy rate stood at circa 95% – that is even after taking into account the dropping out of Robinsons as one of the anchor tenants at The Gardens Mall.
“We gathered that 50% of the vacant space has been taken up by Isetan, while negotiations on the remaining untenanted space are ongoing,” revealed analyst Sharizan Rosely in a results review of IGB REIT.
“For tenancies expiring in FY2021F – 44% of Mid Valley’s Net Lettable Area (NLA) and 35% of The Garden’s NLA – the group has achieved an average 50% renewal rate based on unchanged rental rates.”
This is achieved even as FY2020’s total footfall and tenant sales fell 20% year-on-year (yoy).
Stripping out the RM23.4 mil of net impairment on trade receivables, CGS-CIMB Research said IGB REIT’s FY2020 core net profit of RM260.2 mil was above expectations at 106% of its full-year forecast and 121% of consensus.
The key driver was higher-than-expected net property income (NPI) margin of 68% as against its forecast of 65% though this is still a drop from FY2019’s 72%.
Nevertheless, IGB REIT’s FY2020 revenue fell 15.7% yoy, reflective of the impact of rental assistance/rebates (estimate RM34 mil) throughout the various lockdown periods.
Moving forward, CGS-CIMB Research expects selective rental assistance to still be on the cards over the duration of the current movement control order (MCO 2.0).
“However, we expect the impact of revenue loss in FY2021F to be less severe than FY2020 as more tenants/retailers are allowed to operate,” observed the research house.
“We cut FY2021-2022F revenue by 5-6% due to potential rental rebates while trimming FY2021-2022F earnings per share (EPS)/dividend per unit (DPU) on lower NPI margins.”
All-in, CGS-CIMB Research retained its “add” rating on IGB REIT with higher target price of RM1.89 (previously RM1.85) on belief that the company’s REIT could benefit from the potential rollout of COVID-19 vaccines in March.
“If successful, we believe this would improve retail sentiment and mitigate the risks of tenant drop-outs and falling tenant sales,” added the research house. – Jan 26, 2021
