IGB Real Estate Investment Trust's (IGBREIT) 1QFY23 realised net profit came in at RM96.2m (+12.7% YoY, +13.6% QoQ), broadly within our and consensus estimates. Year to-date, Group realised net profit constituted c.26% of our and consensus full year estimates. Based on the latest valuation done on its assets, the market value of Mid Valley Megamall and The Gardens Mall as at 31 March 2023 remained at RM3.7bn and RM1.3bn respectively with both malls still fully occupied. The improved perfomance was mainly due to the festive season and also improving retail sales of tenants. Group net property income (NPI) and profit after taxation YTD were also higher by 10.1% and 12.7% respectively to RM118.6m and RM96.2m during the quarter. No change to our earnings estimates and maintain our Neutral call and RM1.72 TP, given narrowing yield spreads and risk of slowing economic growth.

• 1QFY23 revenue rose 15.5 % YoY to RM154.6m driven by improving retail sales of tenants and higher average rent registered during the quarter. The distributable income for 1QFY23 amounted to RM102.9m, consisting of realised profit of RM96.2m and the non-cash adjustments arising mainly from manager fee payable in units of RM6.4m. Loan to total asset value is steady at 23%, with its average debt cost at 4.49% p.a.

• Average rents improved for both assets. Both assets in the portfolio are still fully occupied with rental also started to increase in tandem with the improved tenants' sales. As at 1QFY23, average gross monthly rental income for Mid Valley Megamall is at RM16.93psf (vis-a-vis RM15.28psf in FY22), while The Gardens Mall is getting RM15.77psf (vis-a-vis RM13.39psf in FY22). In FY23, Mid Valley Megamall has 165 leases up for renewal (46.2% of total net lettable area(NLA)) while The Gardens Mall has 85 leases expiring in FY23 (45.5% of total NLA).

Source: PublicInvest Research - 28 Apr 2023