Overview of IGB REIT

IGB REIT, a prominent real estate investment trust, holds a portfolio comprising two major shopping malls in Malaysia: Mid Valley Megamall and The Gardens Mall. Known for its robust financial performance, the trust has showcased resilience in challenging market conditions.

4Q24 Financial Performance

IGB REIT’s 4Q24 results were largely in line with expectations, posting a revenue of RM158.3 million, a modest 2.0% quarter-on-quarter (qoq) growth, but a slight 0.1% year-on-year (yoy) decline. The net property income (NPI) for the quarter stood at RM107.9 million, reflecting a drop of 5.5% qoq and 6.4% yoy. However, full-year net profit for 2024 reached RM368.7 million, up 2.7% yoy, representing 96% of both UOB Kay Hian’s and consensus forecasts.

A dividend of 2.5 sen was declared for 4Q24, marking a decline of 6.7% qoq and 7.4% yoy. For the entire year, the dividend totaled 10.7 sen, up 2.2% yoy, yielding a distribution of 5.0%.

Key Drivers and Challenges

Mall Upgrades and Asset Enhancement Initiatives (AEIs)

Revenue from Mid Valley Megamall improved by 1.1% yoy due to AEIs in the South Court. However, The Gardens Mall experienced a revenue decline of 2.9% yoy, primarily due to a dip in tenant turnover rents. The full benefits of these AEIs are expected to manifest only in 1Q25 as some tenants, like H&M and Urban Revival Men, accounting for 15% of Mid Valley’s net lettable area (NLA), were not operational during 4Q24.

Cost Pressures

Higher operating expenses from the AEIs compressed the NPI margin to 68.2% in 4Q24, compared to 73.5% in 3Q24 and 72.7% in 4Q23. Reconfiguration costs amounted to RM13 million for Megamall South Court and RM10 million for The Gardens North Court. These cost pressures are expected to taper off in 1H25 as no major AEIs are planned during this period.

Occupancy and Rental Reversion

Occupancy rates remained robust at nearly 100% for both malls. In 2025, approximately 22% of NLA at Mid Valley and 62% at The Gardens Mall are up for lease renewal. Despite inflationary pressures and rising living costs, a mid-single-digit positive rental reversion is anticipated, ensuring steady income growth.

Valuation and Recommendation

IGB REIT has been assigned a “HOLD” rating with an unchanged target price of RM2.21. The valuation is based on a dividend discount model, with a required rate of return of 8.1% and a terminal growth rate of 2.0%. This implies a dividend yield of 5.4% for 2025. The forward yield spread to the Malaysian Government Securities (MGS) has narrowed to 1.6 percentage points, aligning with its historical mean of 1.73 percentage points, making the current valuation fair.

Environmental, Social, and Governance (ESG) Initiatives

Environmental

IGB REIT is committed to reducing energy consumption, with electricity usage on a consistent downtrend since 2016. The trust actively monitors monthly electricity consumption to achieve its sustainability goals.

Social

Regular cybersecurity training is conducted through e-portals and social engineering tests. Additionally, health and safety measures introduced during the pandemic, such as frequent cleaning of high-touch surfaces and the use of ultraviolet (UV) light for sterilization, have been maintained to ensure the well-being of shoppers.

Governance

The Board comprises four independent and five non-independent directors. Governance practices include adherence to the IGB Group’s Anti-Bribery and Corruption Policy, which aligns with the Malaysian Anti-Corruption Commission Act 2018.

Financial Projections

Looking ahead, IGB REIT’s net turnover is projected to grow by 6.8% in 2025, reaching RM668.6 million. Operating profit is expected to rise to RM493.8 million, with net profit (adjusted) forecasted at RM404.6 million. Dividend per unit (DPU) is anticipated to increase to 11.9 sen, yielding 5.4% in 2025. By 2027, net turnover is projected to reach RM731.5 million, with a DPU of 13.1 sen yielding 6.0%.

Conclusion

IGB REIT continues to demonstrate resilience with a strong asset base and an optimistic outlook fueled by AEIs and robust occupancy rates. Despite current cost pressures, the trust is well-positioned for steady growth in 2025 and beyond. Investors are advised to hold their positions, as the current valuation offers a fair balance between risk and return.