Saturday September 15, 2012
Potential capital upside for IGB REIT
PETALING JAYA: Affin Investment Bank is looking at a potential capital upside of 14% from IGB Real Estate Investment Trust's (REIT) initial public offering (IPO) price of RM1.25.
Initiating coverage on the counter, the investment bank said IGB REIT's assets Mid Valley Megamall and The Gardens Mall were among the most prominant retail malls in Malaysia.
“The retail malls have a large shoppers catchment from its nearby affluent suburbs and the integrated offices and hotels within Mid Valley City.
“We believe its strategic location, good connectivity, large catchment of nearby residents and business crowd and extensive products offerings will continue to attract and retain tenants, even during times of economic uncertainty,” it said.
Affin Investment said the Gardens Mall was a relatively young mall and during its first 3-year rental revision cycle in 2010, its average rental rate was raised by up to 15%.
“We expect another round of strong rental revisions during its next major lease renewal in Nov 2013, as its existing rental rates are at a steep discount to other premium malls.
“The active asset enhancement initiatives by the IGB REIT manager is expected to further improve tenant mix and drive rental rates.
“For example, the redevelopment of a section on the third floor of Mid Valley Megamall (formerly a food court) will result in higher rental upon its completion in December 2012,” it said.
Affin Investment said Malaysian REITs had garnered much interest over the past 12 months as most investors opted for defensive plays in the current uncertain and volatile investment climate. “IGB REIT is our top pick among retail Malaysian REITs,” it said.
“At our dividend discount model-based target price of RM1.43, IGB REIT would be trading at a calendar year 2013 expected implied dividend yield of 4.7%, lower than Pavilion REIT's calendar year 2013 expected implied yield of 4.9%,” it added.
Separately, Affin Investment said IGB REIT's low gearing of 26% (below the statutory limit of 50% and the sector's average of 30%) gave it plenty of room to undertake yield-enhancing acquisitions.
“Potential targets include IGB Corp's upcoming Mid Valley Southpoint and Southkey Megamall in Johor Baru that could be injected into IGB REIT over the next three to seven years,” it said.