Recent selldown presents buying opportunity in IGB REIT

  • Analyst Reports
  • Thursday, 23 Apr 2020

KUALA LUMPUR: There is a buying opportunity in IGB Real Estate Investment Trust (REIT) as its valuations are relatively cheap following the selldown since end-February, says RHB research.

The REIT's share price has declined 20% since end-February to RM1.70 as at the end of Wednesday trading, which brings it closer to its five-year average price-to-book-value.

"We think the current selldown presents an opportunity for investors to accumulate the REIT – which owns quality assets – at a cheaper valuation," RHB said, while noting that the current share price has largely priced in the negatives of the pandemic.

The research house sees minimal risk to a sharp negative revaluation of IGB REIT's properties Midvalley Megamall and The Gardens Mall this year. It added that the two properties have had their respective asset values go up RM165mil and RM95mil since 2012.

"With a gearing ratio of 23% and interest coverage of >6x, backed by near-to-full occupancy rates and blended rental reversion of a low- to mid-single digit, the attractiveness of the REIT’s assets should remain despite the current headwinds, given their strong market positioning," said RHB.

With regards to rental at its malls during the movement control order period, IGB REIT has not offered a blanket offer of rental assistance to the tenants at its malls. Instead, it will review the extent of the damage caused on a case-by-case basis.

"The REIT has not offered a rent-free period, which, to us, suggests its upper hand when it comes to bargaining power," said RHB.

IGB REIT's recently announced 1Q20 core net profit of RM68.4mil was below expectations, coming in at 23% and 22% of RHB's and consensus full-year estimates.

Revenue fell 11.5% year-on-year (y-o-y) and 10.5% quarter-on-quarter due to the support granted to tenants amid the ongoing Covid-19 pandemic and movement control order, as well as lower parking income.

This resulted in net property income (NPI) and core profit dropping 15% and 17.5% y-o-y, and 8% and 9.2% q-o-q. NPI margin dropped to 71% from 72%.
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