IGB REIT’s 1QFY14 results came in  in  line with expectations.  Revenue grew  12.6%  y-o-y,  attributable  to  The  Gardens  Mall’s  major  rental reversions  in  2HFY13.  The  negative  impact  from  the  higher  electricity and assessment expenses has been minimal so far. We believe that IGB REIT will continue to focus on its organic growth over the short term. No changes to earnings estimates. Maintain NEUTRAL and MYR1.27 FV.

• Within  expectations.  IGB  REIT’s  1QFY14  net  profit  of  MYR57.7m (+17.1%  y-o-y;  +8.8%  q-o-q)  came  in  line  with  our  and  consensus’ estimates.  The Gardens Mall’s  (TGM)  major rental renewal in 3QFY14 has  resulted  in  a  strong  revenue  growth  of  12.6%  y-o-y.  Thus  far,  the negative  impact  of  the  electricity  tariff  hike  and  higher  assessment charges has proven to be minimal, as reflected in its steady net property income (NPI) margin of  67.9%.  Total distributable income per unit is at 1.93  sen (+13.7% y-o-y). However,  no dividend distribution  will be made this quarter, given IGB REIT’s semi-annual distribution policy.
• TGM  to  drive  short-term  growth.  We  believe  that  IGB  REIT  will continue to focus on its organic growth, given  that there  is  still potential to be unlocked from TGM, which at present only contributes  about 30% of  revenue.  This  year  will  see  the  maiden  full-year  impact  from  TGM’s major renewal  last  year, which saw the tenancy expiry for about 70% of its NLA.  IGB REIT  took this opportunity to improve  its tenancy mix, and as such, was able to bring in new high-yielding tenants such as Hermes, Gucci  and  Michael  Kors  into TGM.  Nonetheless,  we  believe  that  it  will still  take  some  time  for  TGM’s  average  rental  of  about  MYR9  psf  to match  that  of  Mid  Valley  Megamall’s,  which  is  currently  commanding average rental rates of above MYR10 psf.
• Risks. The risks  include  further subsidy  rationalisation measures, which may lead to inflationary pressure and higher operating costs.
• Maintain NEUTRAL.  No changes to forecasts.  Our FV is maintained at MYR1.27.  We reiterate our view that the  REIT’s short-  to medium-term growth is likely to be buoyed by the kicking -in of positive rental reversion from TGM’s recent renewal,  as well as  Mid Valley Megamall’s ongoing asset enhancement initiatives.

Company Profile
IGB REIT is a retail-focused MREIT. The REIT presently owns two of the largest malls in Klang Valley out of the Golden Triangle area, ie Mid Valley Megamall and The Gardens Mall.

Source: RHB