IGB REIT will free up capital for expansion abroad

KUALA LUMPUR (April 18): IGB Corp Bhd's proposed real estate investment trust (REIT) could free up capital for the property developer to undertake overseas projects it has been eyeing in London and Taiwan.

In a report on Tuesday, AmResearch said that the establishment of the REIT would unleash a significant revaluation surplus from assets re-pricing, and free up capital for redeployment.

It said the proposed REIT would result in a hefty revaluation surplus of RM1.05 billion on top of its estimated value of RM4 billion.

"We believe both assets [Mid Valley Megamall and the Gardens Mall] would be able to gain valuation of at least RM4 billion or at a capitalisation rate of 6%," it added.

"There is a further RM1.05 billion revaluation surplus in IGB's under-appreciated portfolio of well-occupied office buildings (2.2 million sq ft), which are carried in its book at low historical costs," it said, adding that the move was triggered by the high-implied capital values evident in the recent listing of Pavilion REIT and CapitaMall Trust.

AmResearch analyst Nik Ikhwan Nik Mahmood told The Edge Financial Daily he believed IGB would deploy the freed capital to fund development projects overseas in London and Taiwan where it is currently looking at potential opportunities.

He added this might be a trailblazer for IGB to launch an office REIT next year.

The group stands to gain between RM465 million and RM1.4 billion in cash, depending on whether IGB will retain its 75% equity stake in the REIT or choose to dilute its stake to 51%, it said.

A close comparison for IGB's retail REIT could be Pavilion REIT — which owns Pavilion KL mall and Pavilion Tower office block — listed in December last year, and CapitaMalls Malaysia Trust (CMMT).

Pavilion KL mall's appraised value is valued at RM3.415 billion, while CMMT's appraised value as of January 2012 stood at RM2.7 billion.

It may also be one of the biggest in the region, comparable to Frasers Centrepoint Trust and Lippo Malls Indonesian REIT, both listed in Singapore with an appraised value of S$1.7 billion (RM4.16 billion) and S$1.45 billion respectively.

Both REITs are pure retail REITs, with Frasers Centrepoint Trust owning five suburban malls in Singapore and Indonesia's Lippo Malls REIT owning 10 retail malls and seven retail spaces in its portfolio.