Firmer recovery for IGB REIT’s two flagship malls, post-CMCO

IGB Real Estate Investment Trust’s (IGB REIT) flagship neighbourhood malls, the Mid Valley Megamall and The Gardens Mall in Kuala Lumpur are likely to stage firmer recoveries post-conditional movement control order (CMCO), according to CGS-CIMB.

CGS-CIMB said this is due to the two malls’ superior occupancy rates and diversified tenants.

In a research note today, it said the reinstatement of the CMCO in Kuala Lumpur, Selangor, and Putrajaya due to the elevated Covid-19 numbers was likely to disrupt the retail malls’ recovery in the second half of 2020.

The government had initially enforced the CMCO from October 14-27 in Klang Valley but has extended it to November 9, to curtail the spread of the pandemic.

IGB REIT’s net profit for its third quarter ended September 30, 2020 (3Q20), declined 3.7 per cent year-on-year (YoY) to RM76.84 million as compared with RM79.8 million a year ago due to lower rental income as a result of the movement control order.

Turnover was lower by 4.1 per cent to RM130.75 million in 3Q 2020 from RM136.31 million in the year before that as its net property income was adversely affected by the Covid-19 pandemic.

IGB REIT said in a filing with Bursa Malaysia yesterday that the increasing number of Covid-19 cases arising from the emergence of new clusters, the resumption of loan servicing, rising unemployment and salary cut, as well as retail shop closures, dampened both consumer sentiment, and business confidence.

“Despite the grim outlook and the many challenges ahead, IGB REIT is determined to stay resilient throughout the Covid-19 pandemic. It remains committed to bringing about long-term value for its stakeholders,” it said.

The market value of Mid Valley Megamall and The Gardens Mall as of September 30, 2020, remained at RM3.67 billion and RM1.295 billion respectively from the previous quarter. This is based on the valuation reports dated October 1, 2020, by an independent registered value.

IBG REIT said revenue for the nine months ended September 30, 2020, fell 23 per cent year-on-year (y-o-y) to RM317.73 million due to the rental support programme (RSP) throughout the movement control order, exacerbated by the slump in footfall and tenant sales.

Net profit for the period fell 32.3 per cent y-o-y to RM164.70 million due to lower interest income and weaker new product introduction margin of 70 per cent against 73 per cent in the same period last year.

CGS-CIMB said IGB REIT’s results for the first nine months of 2020 were below expectations, as it only made up 60 per cent of the firm’s full-year estimates and 72 per cent of consensus.

“Furthermore, any earnings recovery prospects in the fourth quarter are weighed by the reinstatement of the CMCO,” the firm said.

CGS-CIMB said to reflect a more prudent outlook due to the CMCO, it has assumed a lower positive average rental reversion of +1.0 per cent from +2.5 per cent previously for the financial year ending December 31, 2020, and lower average occupancy rates of 94 per cent from 97 per cent previously.

Source: NST