Potential capital upside for IGB REIT (1597)

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.