17 Apr 2012
- It was announced yesterday that IGB's 75%-owned, KrisAssets has proposed to set up a retail REIT (IGB REIT), comprising its two valuableassets i.e. MidValley Megamall and MidValley Gardens.
- We understand CIMB Investment Bank, Credit Suisse and HongLeong Investment Bank have been appointed as joint global coordinators andjoint book-runners for this proposed IPO.
- Although not mentioned, we believe both assets would be ableto gain valuation of at least RM4bil or at a cap rate of 6%.
- As we have highlighted in our previous reports, the monetisationmove would unleash a significant revaluation surplus from assets re-pricing,and free up capital for redeployment.
- The establishment of a REIT would optimise the ownership structureof its prime properties. This move, we believe, is triggered by the highimplied capital values evident in the recent listing of Pavilion REIT andCapitaMall Trust and a flat interest rate cycle.
- IGB may rake in between RM465mil and RM1.4bil cash, depending on its equity stake in the REIT. We would expect a special dividend and IGB would deploy the freed capital to fund development projects overseas whereby it is looking at opportunities in London and Taiwan.
- There is a further RM1.05bil revaluation surplus in IGB's under-appreciated portfolio of well-occupied office buildings (2.2msf), which are carried in its book at low historical costs. The retail REIT may be the trail blazer for IGB tolaunch an office REIT further out.
- A hospitality REIT for its hotel assets would complete there-pricing of its assets, transforming IGB to an asset-light fee-based entity with controlling stakes in three listed asset-specific REITs.
- We maintain our BUY rating on IGB Corp with our fair value unchanged at RM3.50/share based on a 22% discount to our NAV estimate ofRM4.50/share.
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