Forecasts and Valuation

Source: Company data, RHB

This report can be viewed on www.bursamarketplace.com

Emissions And ESG

Trend analysis

IGBCR has a target of reducing energy usage intensity (kWh/m2/year) by 18% by 2030 (2019 baseline). While overall energy consumption increased in line with the increase in occupancy rates, it came with a reduction in electricity usage intensity.

Emissions (tCO2e)

Source: Company data, RHB

Latest ESG-Related Developments

• Achieved a Gold rating from GreenRE after The Gardens North and South Tower underwent their certification assessment.
• Enhancement of air conditioning system for Menara Tan & Tan.
• LED lighting replacement and motion sensor integration for Hampshire Place Office, and The Gardens North and South Towers

ESG Unbundled

Overall ESG Score: 3.0 (out of 4) Last Updated: 12 Aug 2025

E Score: 3.0 (GOOD)
Guided by the group’s sustainability policy, IGBCR monitors energy consumption across all portfolio properties, and consistently explore ways to reduce consumption and enhance efficiency. The group also adopts a practical approach to water management and waste management.

S Score: 3.0 (GOOD)
IGBCR engages with and supports local communities and charitable organisations both directly and in collaboration with its tenants.

G Score: 3.0 (GOOD)
Out of seven directors, 28.5% (two) are executive directors, 28.5% (two) are non-independent non-executive directors, and 43% (three) are independent non-executive directors. The board is comprised of 57% male and 43% female.

Financial Exhibits

Source: Company data, RHB

Investment Thesis

Strong asset profile bucking the wider downward trend.

Office assets in Kuala Lumpur have generally struggled to maintain high occupancy rates due to the increase of new Grade A, green-certified assets in the market. According to the National Property Information Centre (NAPIC), the occupancy rate for purpose-built office (PBO) buildings in Kuala Lumpur declined to 72% in 2024 from 83% in 2014. This trend has posed challenges for owners of older buildings with ageing amenities. However, demand remains resilient for high-quality, sustainable buildings in prime locations – partly supported by tenants relocating from older premises and multinational corporations aligning with sustainability targets.

IGBCR has proven its ability to meet this evolving demand for quality space, with its blended portfolio occupancy improving to 87.5% in 2024 from 75.4% in 2019. The strength of its portfolio lies in Mid Valley City – an integrated urban development featuring high-end amenities, including a convention centre, hotels, and its two flagship malls, Mid Valley Megamall and The Gardens Mall. This self-sustaining ecosystem has boosted its attractiveness as a commercial hub, offering convenience and value-added services. As of end-2024, assets in Mid Valley City recorded a robust occupancy rate of 93.5%, well above the 72% average for PBOs in Kuala Lumpur.

IGBCR also owns a cluster of assets in the Golden Triangle – the heart of Kuala Lumpur’s commercial and retail activities – strategically located with access to major roads and public transportation. The area remains a preferred location for tenants from sectors such as oil & gas, financial services, and government agencies. Although the occupancy rate for this segment was lower at 77.8% as at end-2024, we believe there is room for improvement, supported by ongoing refurbishment efforts aimed at enhancing the appeal of these assets.

Organic growth from active asset management.

IGBCR drives organic growth through proactive lease management, including early engagement with tenants ahead of lease expiries to secure renewals and pre-emptively backfill potential vacancies. This strategy has resulted in a healthy renewal rate of 75-85% over the past four years and contributed to improved overall occupancy. Concentration risk is mitigated through a broad tenant base of 392 tenants as at Mar 2025, along with diversified exposure across various trade sectors – consultancy, marketing, and business services account for the largest share at 26% of occupied NLA.

The REIT is also actively executing asset enhancement initiatives (AEls) to uplift asset quality and support leasing efforts. Notable examples include the retrofitting of bare floors into fully fitted multi-office spaces at Hampshire Place, G Tower, and Menara Tan & Tan. Following these enhancements, management expects Menara Tan & Tan’s occupancy rate to recover to 70% in FY25F, after dipping to 62% in FY24 (from 70% in FY23). Other AEls include the upgrading of external façade lighting at G Tower, lobby enhancements at Centrepoint, and marble floor restoration at The Gardens Tower – all aimed at improving the tenants’ and visitors’ experience.

Strong backing from its sponsor.

IGBCR is backed by IGB (NOT RATED), one of Malaysia’s largest listed property companies, enabling the REIT to leverage the sponsor’s financial strength, market reach, and extensive network. IGB’s experienced management team also oversees IGB REIT and has a solid track record of driving organic growth in its two flagship assets since IGB REIT’s listing in 2012 – demonstrating strong execution capabilities and a deep understanding of market demand.

IGBCR benefits from a ROFR from its sponsor for the acquisition of commercial properties. While management has not provided guidance on near-term acquisitions, we believe the REIT is well-positioned to pursue inorganic growth given its healthy balance sheet. We see potential for portfolio expansion via the acquisition of two office towers located within the integrated Mid Valley Southkey development – the North Tower and South Tower – currently under the sponsor’s portfolio and could be injected into the REIT over the medium term. As of Jun 2025, IGBCR’s gearing stood at just 27%, implying approximately MYR1.5bn in debt headroom before reaching the 50% threshold.

Attractive dividend yield.

At the current share price, the IGBCR provides an attractive yield of 7.8% – a 440bps premium to the current Malaysian bond yield of 3.4%. We think this is unwarranted given the stability of the REIT’s asset and improved occupancy rates. This is also well above the historical average spread of 340bps between IGBCR’s dividend yield and the Malaysian bond yield since its listing. Given the improving trend for the REIT’s assets, we think the relatively high yield provides a decent alternative for investors seeking defensive assets vs retail and industrial REITs, which provide 5-6% yields.

Valuation & Recommendation

We derived our MYR0.72 TP based on a DDM valuation, as REITs regularly pay out at least 90% of their distributable incomes to unitholders, in order to qualify for tax exemptions. We expect IGBCR to pay out close to, if not 100% of its distributable income. The dividends will be paid quarterly.

In addition, DDM also effectively captures the multi-year earnings growth potential from higher occupancy rate, a boost in rental rate from AEls, and acquisitions. We highlight that this methodology is consistent with the approach we use to value the other REITs under our coverage.

Figure 3: IGBCR’s DDM valuation

Assumptions

Source: RHB

Our assumptions:

1. Risk-free rate: 3.4%;
2. Market risk premium: 8.6%;
3. Market return: 12% (i)+(ii)
4. Beta: 0.57 – average adjusted beta for commercial M-REITs;
5. Discount period of 10 years;
6. Terminal growth: 1%;
7. Cost of equity: 8.3%, (ii)*(iv)+(i).

Office REITs in Malaysia typically trade at cheaper valuations compared to retail and industrial REITs, largely due to persistent supply-demand imbalances in the office market. Our valuation implies a FY26F P/BV of 0.8x for IGBCR, which is higher than Sentral REIT’s (SENTRAL MK, BUY, TP: MYR0.93) 0.7x and UOA REIT’s (NOT RATED) 0.6x. We view these two REITs as the most comparable peers, given their commercial asset size and focus within the Kuala Lumpur office market. We believe this valuation premium is justified, given IGBCR’s larger market capitalisation, higher-quality portfolio, and significantly lower gearing (27% vs more than 40% for both peers).

The implied FY26F yield of 6.5% translates to a 320bps spread over the 10-year MGS10 yield, slightly lower than the historical average spread of 340bps. We believe investors may accept a narrower yield spread if IGBCR continues to improve its blended occupancy through proactive leasing strategies or potential acquisitions.