OSK had published a details analysis on IGB reit, if you need this file (about 22 pages long), you may email to me to request FOC. My email - firstname.lastname@example.org
Another Jewel for Prime Retail Exposure
Upon listing, IGB REIT will be Malaysia’s largest retail REIT with assets comprising The Gardens Mall and Mid Valley Megamall, jointly valued at RM4.6bn, and with a market cap of RM4.3bn and a potential free float of more than RM1.8bn. It offers a defensive dividend-yielding proposition and should trade at valuations comparable to the top three retail REITs, namely Sunway REIT, Pavilion REIT and CMMT, due to its sizeable retail exposure and asset quality. Our FV of RM1.37 is based on a sum of parts valuation, of which:
i) 50% is derived from the average FY13f dividend yields of the top three retail REITs, at 5.1%, and ii) 50% from our estimated P/NAV of the top three retail REITs, offering a 9.6% upside to the IPO price.
The crown jewels. The entire issuance of 3,400m units of IGB REIT will be utilised to finance the acquisitions of its IGB Bhd’s two crown jewels, Mid Valley Megamall and The Gardens Mall, in addition to an estimated RM1,213m to be funded from the drawdown of a portion of IGB’s syndicated financing facilities. Both malls together will make IGB REIT the largest retail REIT listed in Malaysia, serving a large catchment of over six million people in the Klang Valley. Future developments around the vicinity as well as the expansion of the public transportation network, namely the MRT 2 Circle Line, will complement Mid Valley City's business by drawing in more shopper traffic.
Immediate boost from rental reversion. Both malls have solid track records in maintaining >99% occupancy rate and as high as a ~90% retention rate for the current year. We note that up to tenancy on 52.4% (based on occupied net lettable area) in The Gardens expire in FY13 while tenancy of as high as 36.6% in Mid Valley Megamall will expire in 2014. This will provide an opportunity for IGB REIT to renegotiate the rental terms and support its potential efforts to reallocate the tenant mix to sectors with higher rental margins. IGB REIT may see rate hikes potentially exceeding the conservative 5% forecast provided by the management. Forecast yield at 5.0%, FV RM1.37. We believe IGB REIT should eventually be trading at valuations comparable to the sector’s top three - Sunway REIT, Pavilion REIT and CMMT - due to its enormous retail exposure and asset quality. Our FV for IGB REIT is RM1.37, based on a sum of parts valuation, of which:
i) 50% is derived from the average FY13f dividend yields of the top three retail REITs of 5.1%, and ii) 50% based on our estimated P/NAV for the top three retail REITs. Our FV offers a 9.6% upside to the IPO price of RM1.25.
The implied dividend yield based on our FV is 5.0%, which is fair compared to the other retail REITs’ 4.9%-5.1%.