IGB Real Estate Investment Trust (IGBREIT) delivered a lower 2QFY23 net profit of RM81.0m (-2.8% YoY, -3.7% QoQ) mainly due to higher utility expenses and higher reversal for impairment of trade receivables in 2QFY22. In 1HFY23, Group net profit of RM177.2m (+12.8% YoY) came in within our and consensus full year estimates (at about 48% and 49% of our and consensus estimates). Based on the latest valuation done on its assets, the market value of Mid Valley Megamall and The Gardens Mall as at 3 April 2023 remained at RM3.7bn and RM1.3bn respectively with both malls still fully occupied. Group total revenue, net property income and profit after taxation were higher YoY mainly due to the higher rental income achieved during the quarter. All told, we maintain our earnings estimates and reiterate our Neutral call with RM1.72 TP, given narrowing yield spreads and risk of slowing economic growth.

• 2QFY23 revenue rose 4% QoQ to RM154.6m, while net property income (NPI) rose 12.2% QoQ due to higher rental income achieved. However, Group profit after taxation dropped 33.1% QoQ to RM96.2m mainly due to the fair value gain of RM60m recognized in the previous 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 income rising in tandem with the improved tenants' sales. As at 2QFY23, average gross monthly rental income for Mid Valley Megamall is at RM16.27psf (vis-a-vis RM15.28psf in FY22), while The Gardens Mall is getting RM15.29psf (vis-a-vis RM13.39psf in FY22). In FY23, Mid Valley Megamall has 155 leases up for renewal (35.6% of total net lettable area (NLA)) while The Gardens Mall has 65 leases expiring in FY23 (39.4% of total NLA).

Source: PublicInvest Research - 27 Jul 2023