IGB REIT’s earnings
will be led by the organic growth from Mid Valley Megamall (MVM) and The
Gardens Mall (TGM). TGM’s major rental renewal and MVM’s asset enhancement
initiatives (AEI) and tenancy remixing will be the key earnings drivers.
Catalyst from inorganic growth via acquisition is however lacking in the
short-term. Given limited upside to the stock, we downgrade our call on IGB
REIT to Neutral with an unchanged fair value of RM1.43.
TGM to continue
blooming. IGB REIT’s next growth catalyst will likely be the major rental
renewal for TGM, as leases for about 54% of its NLA are due to expire in
FY2013. Management expects rental reversions of about 15% (over a three-year period)
for the renewals, in line with the market average and our assumptions.
Asset enhancement
initiatives and tenant remixing key to MVM’s sustainability. The REIT
manager is more proactive with its AEI and tenant remixing exercises in MVM.
Its most recent AEI on the third floor had resulted in additional retail NLA of
approximately 21k sqf and incremental revenue from the new tenants that were
brought in. The conversion of MPH’s space on the Ground Floor into a
fashion-centric area has also brought in higher-yielding tenants such as Uniqlo
and Forever 21.
Anchor tenants are
likely to stay. Management indicated that MVM’s anchors, AEON and AEON BIG
(the rebranded Carrefour), target slightly different market segments. Hence,
cannibalisation of shopper traffic and sales will be insignificant. We also
understand that the anchors are likely to renew their long-term leases.
Forecasts.
Unchanged.
Investment case.
We are revising our call on the stock to Neutral (from Buy) with unchanged fair
value of RM1.43. Share price has performed in line with our expectations.
Although the assets are well-managed, given that the Southkey Mall will only be
ready in 3-4 years’ time, and hence limited near-term catalysts for inorganic
growth, we believe the REIT is now fully valued.
Source: RHB
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