RTS Link seen to power IGB-REIT growth phase

PETALING JAYA: IGB Real Estate Investment Trust (IGB-REIT) is expected to sustain resilient earnings growth, supported by strong shopper traffic, high occupancy rates and positive rental reversions across its malls, with the opening of the Johor Baru-Singapore Rapid Transit System (RTS) Link emerging as a key growth catalyst for Mid Valley Southkey.

MBSB Research remains positive on the retail-focused REIT, maintaining its “buy” recommendation and unchanged target price of RM2.90, implying an expected total return of 11.6%, including a dividend yield of 5%.

“We remain positive on IGB-REIT as its key malls continue to enjoy strong shopper traffic and tenant demand, which support positive rental reversions. This should help drive steady earnings growth and sustainable distributions going forward,” the research house said.

Similarly, Hong Leong Investment Bank (HLIB) Research expects earnings to remain resilient, underpinned by near-full occupancy and year-on-year growth in tenant sales across all three malls.

HLIB Research, however, maintained its “hold” recommendation and target price of RM2.69, citing a more limited upside at the current share price.

The positive outlook follows IGB-REIT’s third quarter results, with core profit after tax and minority interest rising 43.4% year-on-year to RM147.1mil for the three months ended Sept 30, 2026 (3Q26).

This brought its nine-month core earnings to RM459mil, up 47.6% from a year earlier, accounting for 75% of HLIB Research’s and consensus full-year forecasts, and 78% and 76% of MBSB Research’s and consensus estimates, respectively.

HLIB Research noted that tenant sales at The Gardens Mall continued to grow at high single-digit pace despite mixed performances among luxury brands.

Strong sales from luxury watch boutiques such as Rolex and Patek Philippe helped offset weaker performance from other brands.

Rental reversions at Mid Valley Megamall and The Gardens Mall are deliberately capped at a positive mid-single-digit rate, while Mid Valley Southkey continues to record double-digit reversions, albeit from a lower base.

On costs, HLIB Research believes the latest quarter’s higher property expenses reflect timing differences and should normalise over the full year.

Financing costs are also expected to remain stable, with management planning to refinance most of its RM1.2bil medium-term notes maturing in 3Q27 through fixed-rate instruments.

Occupancy remained high, with Mid Valley Megamall at 99.6%, The Gardens Mall at 97% and Mid Valley Southkey at 98.9% in 3Q26. Gearing also eased to 30%.

Looking ahead, HLIB Research viewed the expected opening of the RTS Link by February 2027 as a strong catalyst for Mid Valley Southkey, as improved cross-border connectivity could attract more Singaporean shoppers.

Meanwhile, an analyst told StarBiz that with most of its borrowings (91%) locked into fixed interest rates, IGB-REIT is relatively insulated from fluctuations in market rates, keeping its financing costs largely stable, with only a marginal 1% quarter-on-quarter increase.

“As the RM1.2bil medium-term note facility approaches maturity in 3Q27, management is inclined to secure longer-term financing at fixed rates.

“However, the REIT could explore shorter-tenure funding options if borrowing costs remained high, allowing it to defer refinancing until market conditions become more favourable,” the analyst added.