IGB Real Estate Investment Trust (IGB REIT) continues to be favoured by some analysts, even as they had lowered their earnings forecast for the REIT.
RHB Institute Research, for instance, kept its “buy” call on IGB REIT with the target price (TP) unchanged at RM1.95, reported The Edge Markets.
The research house explained that it likes the REIT for its solid recovery prospects upon the broad reopening of the economy and mass vaccinations as well as for its strategic rental structure, fully tenanted retail assets and largely domestic shopper profile.
“IGB REIT has the biggest revenue-sharing portion out of all the REITs under coverage (at >10%), and stands to benefit the most from the return in footfall traffic — expected during Aidil Fitri and the year-end festivities in Q2 2021 and Q4 2021,” said its analyst Loong Kok Wen as quoted by The Edge Markets.
“Its largely domestic shopper profile also indicates that normalised footfall, to pre-pandemic levels, can be achieved faster than malls with a sizable exposure to tourists.”
Loong also learned from the REIT’s management that both of its malls continued to post robust occupancy, with The Gardens Mall (TGM) at 92% and Mid Valley Mall (MVM) at 99% as of December last year, while reversions for renewals have been flat.
“The vacant space at TGM (12% of total NLA), following Robinsons Malaysia’s departure, has been divided up to house speciality stores, with two-thirds of the space currently taken up. Barring a reinstated MCO (Movement Control Order), following the resurgence of cases of late — which could result in further delays — we think the mall will be able to enjoy full occupancy soon,” she said.
RHB, however, slashed its earnings forecast for the financial year ending 31 December 2021 (FY2021) by 4% to take into account MCO 2.0’s impact.
Hong Leong Investment Bank (HLIB) Research, on the other hand, likes IGB REIT for its reliance on domestic footfall and prime asset location.
“As we understand, IGB REIT will still be providing rental assistance to its tenants that require support on a case-to-case basis. We believe IGB REIT’s low exposure to tourists (less than 10% exposure to international tourists) and its prominent location will aid in speeding up the recovery from Covid-19 pandemic impact,” said its analyst Farah Diyana Kamaludin as quoted by The Edge Markets.
She revealed that they had slashed their FY2021 earnings forecast by 5% to reflect the lower cark and rental income due to MCO.
“Maintain ‘buy’ with unchanged TP of RM1.91. Our TP is based on FY22 DPU [distribution per unit] on a targeted yield of 4.5% which is derived from two-year historical average yield spread between IGB REIT and 10-year MGS [Malaysian Government Securities] yield,” she added.
CGS-CIMB Research also maintained its “add” call for the REIT and raised its RM from RM1.89 to RM1.93. This come as the local research house expects IGB REIT to “benefit from a potential recovery in 2H 2021”.
It noted that the REIT had registered minimal rental assistance and better footfall.
“We gathered that at end-Q1 2021 (MCO 2.0 ended on March 4), footfall has improved to about 80% recovery rate vs. pre-Covid-19 levels, while tenant sales should be stronger quarter-on-quarter in Q2 2021F,” said its analyst Sharizan Rosely as quoted by The Edge Markets.
“We [also] believe that at end-Q1 2021, average renewal rate for tenancies expiring in FY 2021F should have well crossed the 50% mark as retailers look forward to a potential recovery in consumer spending underpinned by the nationwide vaccination programme. We expect a flattish rental reversion in FY2021F.”
And while selective rental assistance is expected to remain an option to manage tenant dropout as well as occupancy in the coming quarter, Sharizan believes that it will be substantially lower compared to the RM34 million assistance in FY2020.
“Our FY2021-2023F EPS [earnings per share] and DPU are intact; decent dividend yields of 4.4% to 5.4%,” he added.
AmInvestment Research has also kept its forecasts and RM2.03 fair value for the stock based on a 4.5% target yield over its FY 2022 distributable income. The research house also maintained its “buy” call on the REIT.
“At our valuation of RM2.03, IGB REIT offers a potential upside of 15%. We like IGB REIT as we believe its long-term outlook remains positive given its strategically located assets in the heart of Klang Valley and more balanced footfall profile (i.e. only moderate exposure to tourists), enabling it to capitalise on the recovery in domestic consumption while waiting for the borders to reopen,” said AmInvestment Research as quoted by The Edge Markets.
“We favour IGB REIT as a recovery play with reasonable returns with dividend yields of more than 5% for FY2022F and beyond amidst the current low interest rate environment,” it added.
Image source from theedgemarkets.com