IGBCR: REIT Reports Strong Earnings on Occupancy Gains and Cost Management
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A prominent commercial Real Estate Investment Trust (REIT) has announced financial results for the fiscal year 2025 that exceeded expectations, driven primarily by robust occupancy improvements and strategic cost management initiatives. The company’s core earnings for FY25 surged to MYR96.3 million, marking a substantial 34.7% year-on-year increase and surpassing full-year estimates by 5%.
Performance Review
The REIT reported a 12.4% year-on-year growth in revenue, reaching MYR259.9 million, while net property income (NPI) saw an impressive 17.2% rise to MYR153.3 million. This strong performance was underpinned by a significant improvement in portfolio occupancy, which increased to approximately 92% from 88% in FY24, alongside a gradual uplift in average rental rates. The dividend per unit (DPU) for FY25 rose to 4.23 sen, compared to 3.64 sen in the previous year.
A key factor contributing to the positive earnings was effective cost management, particularly through fixed-rate refinancing. The REIT successfully refinanced MYR850 million in medium-term notes at a fixed rate of approximately 3.95%, significantly lower than the previous rate of around 4.3%. This move is expected to generate annualised savings of approximately MYR2.4 million and locks in interest rates, with roughly 97% of borrowings now on fixed rates. The balance sheet remains flexible with gearing at about 26%, providing capacity for future asset enhancement initiatives and yield-accretive opportunities.
Future Outlook and Challenges
Despite a broader office sector still grappling with oversupply, the REIT anticipates sustaining a steady performance. Occupancy rates are expected to continue their recovery, and rental growth, though modest, is projected to be durable. Leasing momentum is being driven by proactive asset enhancement initiatives and a build-to-suit approach that aligns with tenants’ priorities for cost efficiency, workplace quality, and sustainability. Management’s guidance for low-to-mid-single-digit rental reversions in FY26 is considered realistic given the current supply backdrop.
The REIT’s fully green-certified portfolio is strategically positioned to support tenant retention and reduce churn risk. Its focus on prime, mixed-use locations is expected to enable it to gain market share even in a low-growth office environment. Potential risks include slower leasing for assets in the Kuala Lumpur City Centre, weaker-than-expected rental reversions, and a general macro slowdown impacting office demand.
Investment Recommendation
The investment bank maintains a “BUY” recommendation for the REIT, with a target price of RM0.25, representing an upside of 25.0% from the last traded price of RM0.20.
