Positive rental reversions expected for Mid-Valley Megamall, The Gardens Mall
KUCHING: Two of IGB Real Estate Investment Trust (REIT) biggest commercial assets, Mid-Valley Megamall and The Gardens Mall are expected to achieve positive rental reversions in the remainder of the year.
According to the team at Kenanga Investment Bank Bhd ( Kenanga Research), both malls will see a significant amount expiry in their Net Lettable Areas ( NLAs) – 35 per cent for MVM and 40 per cent for TGM.
Due to the mall’s attractive rental demand and historical reversion rates, Kenanga Research is anticipating IGB to be able to achieve rental reversions of 15 per cent for both malls in FY17 to FY18.
“We reckon the group should be able to achieve higher base rental reversions as their mall rental rates have a higher component of turnover rent,” guided the research arm.
The research arm of Midf Amanah Investment Bank Bhd (Midf Research) on the other hand, has a more conservative view on IGB REIT and believes that this positive reversion in the two malls would like float around 5 per cent per annum ( p.a) instead.
The research arm explained its more conservative figure was derived from IGB REIT’s previous 5 per cent p.a rental reversion in FY16 alongside high occupancy rates.
“The rental reversions from FY16 resulted in an increase in earnings of 3.5 per cent year over year ( y- o-y) for the first quarter of 2017 (1QFY17),” Midf Research commented.
These higher earnings caused the group’s 1QFY17 core net income of RM75.4 million to meet expectations, meeting approximately 25 to 26 per cent of consensus full year estimates.
Meanwhile, IGB REIT has no visible acquisitions in the near to medium-term.
Based on these factors, both analysts are maintaining their earnings forecast of the group for FY17-18.
MIDF Research is forecasting the group’s earnings to grow at 4.3 and 5.9 per cent, while Kenanga Research’s realised net income (RNI) of RM287 to RM304 million.
Kenanga Research decided to upgrade its rating on the stock to ‘Outperform’ with a higher target price of RM1.82.
The research arm explained that the upwards rerating was due to IGB REIT commanding better gross yields of 5.8 per cent in compairsion to other predominantly retail-based mall REITs’ average gross yield of 5.5 per cent and 13 per cent total returns.
“Additionally, we are comfortable with our ‘Outperform’ call as it is backed by the REIT’s prime asset location and asset stability that has continuously garnered strong occupancy on the back of double- digit reversions, which should provide a flight for safety for investors.”
On the other hand, MIDF Research is maintaining its ‘neutral’ stance on the stock despite an expected positive performance from the group.
The research arm justified its reasoning for this move by pointing out that the stock’s dividend yield had tapered off to 4.9 per cent following a recent gain in share price.