IGB Real Estate Investment Trusts’ (IGBREIT) registered a weak quarter in 1QFY20, after posting realized net profit of RM68.3m (-17.5%YoY, -9.2%QoQ) due to impact from lockdown following the Movement Control Order (MCO) from 18 March 2020 to 28 April 2020 to contain the Covid19 pandemic which resulted in all government and private premises to close except those providing essential services. The 1QFY20 was roughly in line with our and consensus estimates however with the first quarter net profit constituted c.23% of our and consensus full year estimates. Maintain Neutral call and RM1.72 TP given current weak consumer sentiment and we believe the REITs’ defensive attribute could be weakened further on higher risks of credit crisis and damaging recession.

• DPU dropped c.19% YoY to 1.94sen. IGB REIT announced 1.94sen DPU in 1Q19 on lower net property income of RM88.4m (-14.6% YoY) due to the rental support provided to tenants and lower car park income arising from the Covid-19 pandemic and MCO since mid-March 2020. The distributable income for the current quarter amounted to RM74.5m, consisting of realised profit of RM68.4m and the non-cash adjustments arising mainly from manager fee payable in units of RM5.4m.

• Rental income adversely impacted by MCO. IGBREIT’s rental income is expected to be negatively impacted by rental support programme and potential increase in expected credit losses and possible impairment of fair value for investment properties arising from a prolong MCO period. In lieu of direct rent holiday, we understand that it has instead granted rental support which is based on a new rental structure designed for the tenants to manage cash flow better on case to case basis.

Source: PublicInvest Research - 23 Apr 2020