Broker: Maybank Investment Bank Berhad
Date of Report: June 25, 2025

IGB REIT’s Strategic Expansion: Mid Valley Southkey Acquisition Set to Drive Growth and Diversification

Overview: IGB REIT’s Bold Move into Johor with Mid Valley Southkey Acquisition

IGB REIT (IGBREIT MK) has announced its landmark acquisition of Mid Valley Southkey (MVS) Mall in Johor Bahru for MYR2.65 billion, marking its first foray outside the Klang Valley. This strategic expansion signals a new chapter for IGB REIT, enhancing both its income stream and geographical diversification. The acquisition is expected to be both earnings- and DPU-accretive, supported by MVS Mall’s strong operational metrics and prime location within the thriving Southkey integrated development.

With this move, Maybank Investment Bank Berhad upgrades IGB REIT to a BUY, raising the dividend discount model-based target price to MYR2.56, up from MYR2.22 previously.

Deal Structure and Funding: A Hybrid Approach

The acquisition of Mid Valley Southkey is set at MYR2.65 billion and will be funded through a combination of MYR1 billion in cash and MYR1.65 billion via the issuance of 699.2 million new units at MYR2.36 per unit. This will represent 16.2% of the enlarged share base. The cash portion will be raised through a new Medium-Term Note (MTN) programme.

As the transaction is classified as a related party transaction (RPT), it will be subject to approval by non-interested unitholders and relevant authorities.

Mid Valley Southkey Mall: Attractive Asset with Robust Performance

• Net Lettable Area (NLA): 1.53 million sq. ft.
• Occupancy Rate: 95% as of May 2025
• Diversified Tenant Mix: Anchor tenants include SOGO, Village Grocer, Golden Screen Cinemas, Aurum Theatre, and MVEC Exhibition Hall, collectively accounting for 29% of total NLA.

The mall is strategically located within the integrated Southkey development, surrounded by office towers, hotels, and residential units, ensuring consistent footfall and retail traffic. Its proximity to Singapore further boosts its long-term value proposition.

Financial Impact: Upward Revisions to Earnings and DPU

The acquisition is anticipated to complete in 4Q25, with full earnings contribution expected from FY26 onwards. Key financial adjustments include:

• Revenue forecasts for FY25/26/27E raised by 5.4%/43.2%/43.0% respectively.
• Net property income (NPI) forecasts increased by 5.0%/40.0%/39.8%.
• Core net profit projections lifted by 2.5%/34.9%/35.6%.
• Earnings per unit (EPU) for FY25/26/27E raised by 0.4%/13.0%/13.5%.
• Distribution per unit (DPU) up by 2.3%/14.1%/14.7%.

Dilution from the enlarged share base is expected to be offset by the earnings accretion from MVS Mall. The implied net property income (NPI) yield of approximately 7.2% is particularly attractive and should support margin expansion. Post-acquisition, gearing is expected to rise modestly to 0.26x from 0.21x (end-March), still leaving ample headroom for future acquisitions or asset enhancements.

Long-Term Outlook: Enhanced Portfolio and Growth Prospects

The integration of MVS Mall into IGB REIT’s portfolio is expected to drive sustained growth, bolstered by the mall’s solid fundamentals and the broader Southkey development. The potential for rising valuations is further supported by the mall’s close proximity to Singapore, which may attract cross-border shoppers and tenants.

Key Financial Highlights and Projections

Valuation: Higher Target Price Reflects Growth Potential

Maybank Investment Bank Berhad has raised its DDM-based target price for IGB REIT to MYR2.56 per unit, reflecting the enhanced value from the acquisition. This is based on a cost of equity of 6.9% and a dividend terminal growth rate of 1%. The new valuation incorporates higher distributable income projections and the enlarged share base post-acquisition.

Risk Factors: What Investors Should Watch

• Changes in rental and occupancy rates, as well as operating expenses, could impact earnings.
• About one-third of IGB REIT’s NLA is due for lease renewal in 2025, which could affect income stability.
• All debts are on fixed rates, mitigating immediate interest rate risk.
• A resurgence of pandemic-like events could negatively impact mall footfall and overall performance.

Company Profile and Shareholder Structure

• IGB REIT invests in a portfolio of income-producing real estate, primarily for retail purposes.
• Major shareholders: IGB Bhd (48.8%), Employees Provident Fund (10.5%), Kumpulan Wang Persaraan (7.3%).
• Free float: 35.2%
• Issued shares: 3,546 million
• Market capitalization: MYR8.1 billion (USD1.9 billion)

Price Performance Snapshot

• 12-month price target: MYR2.56 (+17%)
• Previous price target: MYR2.22
• 52-week high/low: MYR2.39 / MYR1.82
• Recent share price: MYR2.28
• 1M/3M/12M absolute return: (0)%, 0%, 25%
• Relative return to index: 1%, (1)%, 31%

Key Financial Ratios and Metrics

Conclusion: IGB REIT Poised for Robust Growth

The acquisition of Mid Valley Southkey represents a transformative step for IGB REIT, positioning the trust for enhanced income, stronger diversification, and long-term value creation. With a robust asset base, healthy financials, and a clear strategy for expansion, IGB REIT stands out as a compelling proposition for investors seeking exposure to Malaysia’s retail property sector.