IGBREIT: Retail REIT Exceeds Expectations on Operational Strength, Strategic Acquisition to Fuel Future Growth

Performance Review

A leading retail real estate investment trust has reported financial results for the first nine months of 2025 (9M25) that significantly surpassed market expectations. This strong performance was primarily driven by robust operational efficiencies, healthy rental reversions, and effective cost management across its portfolio.

For the 9M25 period, the trust recorded a core profit of MYR311.7 million, reflecting a notable 9.9% year-on-year increase. This figure comfortably exceeded both RHB’s and the Street’s full-year estimates, accounting for 78% and 76% of their respective forecasts. Revenue for the period climbed 6.2% year-on-year to MYR496.7 million. In the third quarter of 2025 (3Q25), distributable income per unit (DPU) saw an uptick to 2.8 sen from 2.6 sen in 3Q24, bringing the cumulative 9M25 DPU to 8.6 sen. The trust’s gearing remained stable at a healthy 17.0%.

Operational Highlights

Operational strength was a key highlight, with the net property income (NPI) margin expanding by 2.3 percentage points to 76.1% for 9M25. This improvement was supported by operating leverage from higher revenues and reduced utilities costs. The trust’s prime retail assets, including Mid Valley Megamall (MVM) and The Gardens Mall (TGM), maintained high occupancy rates of 99.8% and 98.6% respectively. Rental reversions remained positive across segments, with leases seeing mid-single-digit hikes, and the successful pass-through of sales and service tax (SST) to tenants further bolstered income.

Future Outlook and Strategic Growth

Looking ahead, the fourth quarter of 2025 (4Q25) is projected to remain strong, benefiting from year-end school holidays and festive spending, periods historically known for robust consumer activity. While management observed some softness in consumer sentiment, tenant sales have demonstrated resilience. A pivotal development, the acquisition of Mid Valley Southkey (MVS), is on track for completion by the end of 2025 and is expected to commence its maiden revenue contribution from December 2025, potentially contributing approximately 29% to the trust’s FY26F revenue. Furthermore, a new MYR5 billion medium-term notes (MTN) programme offers ample financial flexibility for future inorganic growth. No significant asset enhancement initiatives are currently slated for MVS.

Rating and Risks

Despite the strong results and revised FY25 earnings forecast (up 6%), RHB has maintained its “Neutral” rating for the trust. The investment bank has raised its dividend discount model-derived target price to MYR2.61, indicating a 1% downside from the current market price. RHB noted that the current valuation largely reflects the trust’s organic growth drivers. Key risks identified include potential fluctuations in rental reversions, changes in consumer spending sentiment, and occupancy rates.