Is IGB REIT The Best REIT In Malaysia?

Listed in 2012, IGB REIT owns and derives income from two retail malls situated at Kuala Lumpur. Collectively, they offer a net lettable area (NLA) of 2.67 million sq. ft. and were valued at RM 4.96 billion as of 31 December 2018. Therefore, it is one of the biggest REITs listed in Malaysia. In this article, I’ll cover on its latest financial results and valuation figures.

Here are 10 things to know about IGB REIT before you invest:

• Breakdown of Portfolio Valuation 2018
  IGB REIT’s retail malls are MidValley Megamall (MVM) and the Gardens respectively. Both of them are located adjacent to each other. Here, the breakdown of IGB REIT’s portfolio valuation for 2018 is as follows:
  
  

No.	Retail Malls	Valuation 2018 (RM Million)	Valuation 2018 (%)
1	MVM	3,665	73.9%
2	The Gardens	1,295	26.1%
IGB REIT’s Portfolio Valuation	4,960	100.0%

Source: IGB REIT’s Annual Report 2018

• Property 1: MVM
  Midvalley MegaMall is one of the largest shopping malls in Malaysia with 1.82 million sq. ft. of NLA and 6,092 car park bays. In 2018, MVM recorded a 99.3% in occupancy rate and is occupied by 556 tenants, which is an increase from 467 tenants in 2013. It is attributed to efforts in creating additional retail spaces in MVM for the last 6 years. Thus, it has contributed to an increase in both revenue and net property income (NPI). Revenues had grown from RM 300.0 million in 2013 to RM 375.0 million in 2018. This had caused NPI to increase from RM 211.9 million in 2013 to RM 286.4 million in 2018.
  
  
  

Source: IGB REIT’s Annual Reports

• Property 2: The Gardens
  The Gardens has 0.84 million sq. ft. of NLA and 4,128 car park bays. The retail mall had recorded a 97.2% in occupancy rate with as much as 237 tenants in 2018, which is at similar levels for the past 6 years. Revenues increased from RM 130.7 million in 2013 to RM 160.6 million in 2018. It had contributed to an increase in NPI from RM 73.8 million in 2013 to a high of RM 99.9 million in 2018. Its growth rate is slower than MVM for the Gardens relied solely on rental reversions to achieve increments for both revenues and NPI during the 6-year period.
  
  
  

Source: IGB REIT’s Annual Reports

• Financial Results
  Overall, IGB REIT has achieved consistent increase in gross revenue and distributable income. Gross revenues had grown from RM 430.7 million in 2013 to RM 535.7 million in 2018. Its distributable income has grown from RM 241.1 million in 2013 to RM 341.4 million in 2018. The growth was contributed by both MVM and the Gardens. As a result, it had paid out increasing distribution per unit (DPU) from 7.10 sen in 2013 to 9.19 sen in 2018.
  
  
  

Source: IGB REIT’s Annual Reports

• Balance Sheet Strength  
  As of 31 December 2018, IGB REIT has total borrowings totalling to RM 1.21 billion and total assets of RM 5.20 billion. Thus, its gearing ratio is 23.33%, which is relatively at stable levels over the last 6 years and well below the 50% threshold allowed by REIT Guidelines. Hence, it enables IGB REIT to borrow to fund any asset enhancement initiatives (AEIs) or embark on any investment opportunities, if any arise.
  
  
  
• Land Lease Profile
  IGB REIT’s retail malls are leasehold properties where the expiry date of their land leases is 6 June 2013. As such, both retail malls have as much as 84 years in land lease balance presently.
  
  
  
• Latest 12-Month Financial Results
  From Q2 2018 to Q1 2019, IGB REIT has recorded the following amount of gross revenue, distributable income and DPU. Evidently, IGB REIT has maintained its financial performance in Q1 2019:
  
  

Period	Gross Revenue (RM Million)	Distributable Income (RM Million)	Distribution per Unit (Sen)
Q2 2018	127,968	79,310	2.14
Q3 2018	133,725	85,244	2.29
Q4 2018	137,206	84,977	2.28
Q1 2019	141,232	89,455	2.40
Total	540,131	338,986	9.11

Source: IGB REIT’s Quarterly Reports

• Who Owns IGB REIT?
  As of 11 February 2019, IGB REIT’s key unitholders and their amount of direct unitholdings are as followed:
  
  
  

No.	Unitholders	Direct Unitholdings (%)
1	IGB Bhd	48.97%
2	Employees Provident Fund Board	7.56%
3	IGB REIT Management Sdn Bhd	3.95%
4	Kumpulan Wang Persaraan (Diperbadankan)	2.73%
5	Great Eastern Life Assurance (Malaysia) Bhd (Par 1)	1.49%

Source: IGB REIT’s Annual Report 2018

• P/B Ratio
  As of 8 May 2019, IGB REIT is trading at RM 1.86 an unit. On 31 March 2019, it has net asset value per unit of RM 1.066. Thus, its current P/B Ratio is 1.75, well above its 7-Year average of 1.42 and the highest ever recorded since its listing in 2012.
  
  
  

• Dividend Yields
  From Point 7, IGB REIT has declared and paid out 9.11 sen in DPU in 12 months.
  
  Hence, its gross dividend yield is 4.90% a year, below its 7-year average of 5.64% per annum and also the lowest since its listing in 2012.
  
  
  

Notes:
For Malaysian REITs, unitholders are paid net DPU after a deduction of 10% in withholding taxes. Thus, unitholders would be receiving around 8.199 sen in net DPU (90% of 12-Month DPU of 9.11 sen). As such, IGB REIT’s net dividend yield works out to be 4.41% per annum.

VIA’s Verdict

Overall, IGB REIT has delivered stable and sustainable growth in gross revenues, NPI, distributable income, and DPU for the last 7 years. As a result, this resulted in a continuous growth in unit price since its listing in 2012 and hence, lifting its market capitalisation from RM 4.07 billion in 2013 to RM 6.57 billion presently.

Source: Google Finance

Here is a lesson for all.

I find IGB REIT has been ‘dismissed’ by ‘new investors’ as it was deemed to be a stock not exciting despite delivering stellar financial results to unitholders since its listing. That is a mistake. IGB REIT has proven itself that a simple and ‘boring’ business model which is understandable by all is capable of delivering a decent investment return to investors (if its units were bought at the right time).

But, is now the right time? Would you invest in IGB REIT’s units at RM 1.86 per unit today? Please leave your comments below:

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