- We re-affirm our HOLD recommendation on IGB REIT (IGBR),
with an unchanged fair value of RM1.38/unit based on a 10% to our DCF value,
following the release of its 3Q results.
- IGBR’s 3QFY12 results, which covered the period from 25 July
to 30 Sept 2012, were above expectations, exceeding management’s earnings
forecast by 12.9% as well as ours and consensus’ estimates, on an annualised
basis. No dividend was declared.
- IGBR was incorporated on 25 July 2012 capturing only 68 days
in the 3Q. Listed recently on the 21 September, the 3Q result only captures an
11-day impact. It only completed the acquisition of its property portfolio on
20 September 2012.
- Gardens Mall, being the relatively younger mall, is envisaged
to act as the key growth driver. Blended rentals are fairly low at RM8.74/sf (a
discount to Suria KLCC’s RM25/sf and Pavilion Mall at RM18/sf) despite its
high-end mall status. A voluminous 54% of NLA is expiring next year. More
importantly, this represents the second round of rental reversion and, hence,
still in the early stages of the rental cycle.
- We understand there is a potential tenant remixing in Mid Valley
Megamall should Carrefour (12.3% of NLA) decides to exit. As such, a positive
boost to rentals can be achieved via segregating these large spaces into
smaller units, given that speciality stores are able to yield higher rentals.
To-date, blended rentals are at RM10.75/sf, comparable to Sunway Pyramid of
RM10.30/sf.
- Admittedly, in our view, the upcoming Southkey Mall project
is a little too far-off at this point, given the estimated timeframe of at
least 8 years for its injection into the REIT. Despite the inadequate secured
pipeline of asset injections in the near term, we like IGBR for its
retailoriented malls that are backed by a strong and reputable sponsor. This
should therefore lead to further earnings expansion and enhancements, going
forward. Note that IGBR is granted the right of first refusal for all IGB
Corp’s properties.
- Relative to its peers (FY12F – PavREIT: 4.5%, CMMT: 4.5%),
IGBR’s FY12F and FY13F distribution yield is estimated at 5.1% and 5.3%,
respectively, based on a 100% payout
ratio.
- Although we are of the view that IGBR intends to grow organically
for now, we like its quality asset and retailfocus within the Klang Valley –
hence, our HOLD recommendation pending potentially more constructive asset
injections ahead.
Source: AmeSecurities
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