Period  3Q14/9M14

Actual vs. Expectations 9M14 realised net income (RNI) of RM176.4m came in within expectations, making up 80% of street consensus and our estimates.

Dividends  None, as expected.

Key Results Highlights QoQ, topline declined marginally by 2.5% to RM112.6m on minimal rental reversions and potentially lower turnover rent. However, we expect 4Q14 to normalise as we expect the full impact of FY14 rental reversions to kick start in 4Q14. NPI margins improved by 3.1ppt on better cost management efforts which allowed NPI to increase by 1.9%, while slightly higher interest income managed to lift RNI by 2.8% to RM60.1m. There was also a revaluation gain on assets of RM85.0m.

 YoY, topline growth increased by 4% to RM112.6m due to the double-digit rental reversions in FY13 on 27% and 54% of occupied NLA for MV and TGM, respectively. NPI margins improved (+3.0ppt) due to similar reasons mentioned above, allowing NPI to increase by 9% to RM78.7m. The strong topline growth, coupled with higher interest income (+25%) was sufficient to offset the increase in expenditure (+7%), allowing RNI to increase by 12%.

 YoY-Ytd, topline growth was strong increasing by 8% to RM342.2m on the back of double-digit rental reversions in FY13, which full impact is more apparent in FY14. The improvement in NPI margins by 1.6ppt, and higher interest income (+26%) was sufficient to negate the increase in expenditure (+7%) in 9M14. As a result, RNI increase by 15%, while RNI margin also improved by +2.9ppt.

 Note that the company no longer provides a breakdown of MV and TGM segmental breakdown.

Outlook  Management is guiding reversions of 10%-15% on leases up for expiry in FY14E, of which 37% and 31% of NLA for MV and TGM will be expiring. We expect the bulk of FY14 rental reversions to be felt in 4Q14, similar to FY13.

 The asset acquisition environment remains challenging due to the low cap rate environment of 5%-6% at present and we believe IGBREIT is unlikely to make any acquisitions in the near term, despite their low gearing level of 0.24x.

Change to Forecasts  We make no changes to our FY14E and FY15E RNI.

Rating Maintain MARKET PERFORM

Valuation  We maintain our MP call as we have factored in potential re-rating catalyst (i.e. European QE) and there are no further threats to our call at this juncture. No changes to out TP of RM1.35 based on FY15E target gross dividend yield of 5.6% (net: 5.0%) or a +1.8ppt spread to the 10-year MGS of 3.80%.

Risks to Our Call  Bond yield expansion or compression vs. our target 10-year MGS.

 Weaker-than-expected rental reversions.

Source: Kenanga