Despite the growing competition in the local retail space, following the mushrooming of shopping malls, IGB REIT has continued to perform well, whether in terms of earnings or gains from its rising share price. Its total return was 61% in the three-year award evaluation period of June 30, 2015, to June 29, 2018, translating into an annualised return of 17.2% over the period.
Like the upward trend in its share price, IGB REIT’s net property income (NPI) increased 19.5% to RM373.6 million in its financial year ended Dec 31, 2017 (FY2017), from RM312.6 million in FY2014. This translated into a compound annual growth rate of 6.1% in the last three years on the back of stronger revenue growth of 13.7% to RM524.9 million in FY2017 in the same period. Gross revenue in the last three years saw a CAGR of 4.4%.
Dividends have also been attractive, offering a 5.5% yield at the time of writing. The REIT has also shown consistency in rewarding its shareholders, reflected by the one-year dividend growth of 9.68% and three-year dividend growth of 4.38%.
The outperformance of its share price highlights its strong portfolio, which includes Mid Valley Megamall — dubbed a shopper’s paradise or fashionista’s heaven — and its premium sister, The Gardens Mall — a six-level haven of more than 200 shops featuring top international fashion brands.
While 2018 proved to be a challenging year for the retail sector, increased competition due to the oversupply of retail space and the growing popularity of online shopping saw IGB REIT push ahead with asset enhancement initiatives (AEIs) for Mid Valley Megamall and The Gardens Mall to build stronger relationships with customers. In fact, an additional 18,000 sq ft of net lettable area is planned on the lower ground floor of The Gardens Mall.
Management is keeping a watchful eye on how e-commerce is changing consumer spending habits. The company noted in its 2017 annual report that while online shopping is gaining in popularity around the world, the total online retail spend represented a small portion of the total in Malaysia.
Management’s ongoing efforts resulted in stronger first nine-month results in FY2018, with 4.1% year-on-year growth in NPI to RM289.8 million, mainly on higher rental income and lower property operating expenses. The REIT’s performance so far this year has been in line with that of other REITs as its total year-to-date return was flat at 0.4%.
The good track record of IGB REIT’s management seems to have won the approval of analysts as Bloomberg data shows that there are six “buy” and five “hold” calls on the company amid concerns that booming e-commerce and the oversupply of shopping malls could hurt retail players.
The consensus 12-month target price of RM1.81, which is 7.7% higher than its current price of RM1.68, however, indicates that the market is fairly priced. At this level, IGB REIT is trading at a trailing price-earnings ratio of 17.1 times.