"Highest growth in profit after tax over three years / Highest returns to shareholders over three years: REITS: IGB REIT - Mega mall pioneer resilient despite retail space competition"

Highest growth in profit after tax over three years / Highest returns to shareholders over three years

REITS

IGB REIT - Mega mall pioneer resilient despite retail space competition

Billy Toh / The Edge Malaysia

August 28, 2017

Investors in IGB Real Estate Investment Trust, a pure retail play in the REIT sector, benefited from the strong interest in REITs in the past two years, amid low returns and depressed market sentiment.

Average total return a year for investors was 20.43% between March 31, 2014, and June 30 this year, when IGB REIT closed at RM1.76.

The dividend that was given out was also attractive, with a yield of 5.1% at the time of writing. The retail investment trust has shown consistency in rewarding its shareholders, as reflected by the one-year and three-year dividend growth of 6.35% and 7.35% respectively.

The outperformance of its share price is a reflection of its strong portfolio, which comprises Mid Valley Megamall — dubbed a shopper’s paradise or fashionista’s heaven — and The Gardens Mall, a premium six-level shopping haven with more than 200 outlets, including top international fashion brands.

Residents of the Klang Valley have probably visited the malls at least once, with their location within the affluent Kuala Lumpur neighbourhoods.

In the financial year ended Dec 31, 2016 (FY2016), the average revenue per sq ft of the properties in its portfolio was RM188.70 — a 12.7% increase from RM167.40 per sq ft in FY2013.

IGB REIT had a far superior average revenue per sq ft — about 2.7 times more — than Hektar REIT, another investment trust that focuses on the retail segment, during the same period.

Distributable income grew at a three-year compound annual growth rate (CAGR) of 9.5% to RM316.3 million in FY2016 from RM241.1 million in FY2013. That happened even as IGB REIT’s net property income grew by a three-year CAGR of 8.1% to RM361.1 million in FY2016 from RM285.7 million in FY2013. During the same period, revenue grew by a three-year CAGR of 5.6% to RM507.3 million in FY2016 from RM430.7 million in FY2013.

While 2017 is being viewed as a challenging year for the retail sector, with increased competition in the Malaysian market due to the oversupply of retail space and increasing popularity of online shopping, IGB REIT continues to push ahead with asset enhancement initiatives for both Mid Valley Megamall and The Gardens Mall. Experiential marketing and activation-based campaigns will also be held to support its tenants.

Its ongoing efforts have resulted in a stronger first quarter result for FY2017, with a growth of 2.6% in its net property income to RM96.1 million from RM93.6 million in 1QFY2016, mainly on higher rental income. This was despite weak consumer sentiment that saw sales in the Malaysian retail industry contract by 1.2% in the first quarter of this year.

The continued growth seen in IGB REIT is also reflected in its share price. On July 31, it edged higher by 1.2% to RM1.71. Year to date (as at July 31), it had a total return of 8.9% — far above the REIT market, which registered a total return of 2.52% during the same period.

Analysts like the strong track record of IGB REIT’s management, with Bloomberg data showing four “buy” calls and six “hold” calls for the company, amid concerns and fears that the booming e-commerce space and oversupply of shopping malls could hurt retail players. The consensus 12-month target price of RM1.86 indicates an 8.8% upside potential at the time of writing.